The worst for mortgages may be over, but younger borrowers still face affordability challenges

Key Takeaways:

– The worst times for mortgage originations may be over, but it is still an unaffordable environment for younger borrowers.
– Loan volume declined by 21% between the third and fourth quarters, but it was less than the drop from the previous year.
– Loan volume in the fourth quarter increased by 1% year over year, marking the first year-over-year loan growth since Q1 2022.
– The recovery in the mortgage industry is at its early stages.
– The average monthly income of homebuyers has increased by nearly 30% over the past three years.
– The average loan amount rose to an average of $345,000 in the fourth quarter.
– Younger borrowers are losing traction in the market due to lack of affordability.
– HELOC volume was slightly down but remained elevated by 9% on a year-over-year basis.
– Balances on HELOCs have been rising and stood at $360 billion in Q4 2023.
– Borrower age trended up from Q3 2023, with younger age groups seeing a decline in their share of borrowers.
– Baby Boomers hold a significant amount of American real estate and as they age, there will likely be a wealth transfer and a freeing up of homes in the market.

HousingWire:

The worst times for mortgage originations may be over as the market appears to be turning, but it’s still an unaffordable environment for younger borrowers in particular, according to a fourth-quarter 2023 lending report from Maxwell.

Loan volume between the third and fourth quarters declined by 21%, but that was far less than the 37% drop from Q3 2022 to Q4 2022, the report showed.

Meanwhile, loan volume in the fourth quarter was up by 1% year over year, a significant increase from the annualized decline of 65% in Q4 2022. And it marks the first year-over-year loan growth for any three-month period since Q1 2022.

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“The fact that year-over-year loan volume is no longer in the red is a powerful early sign that the industry recovery is at its early stages,” John Paasonen, co-founder and CEO of Maxwell, said in the report. “While the pace of recovery in 2024 is still uncertain, our data indicates we’re past the worst of the current market cycle.”

Maxwell’s mortgage lending report leverages data from its business intelligence platform, which derives trends from more than $300 billion in loan volume transacted on the Maxwell platform across 300-plus lenders, according to the company.

The average monthly income of homebuyers jumped nearly 30% over the past three years, with December 2023 marking a record-high of $12,100. 

Similarly, the average loan amount rose to an average of $345,000 in the fourth quarter.

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“In response, borrowers in younger age brackets lost traction in Q4 2023, edged out of the market by lack of affordability,” the report stated.

“If home prices and lending costs moderate in 2024, significant demand could flow into the market. That demand may be impeded by low inventory, but lenders should still ready their businesses to capture available loan volume.”

In today’s recovering market, borrowers continue to look for outside-the-the box options that  make sense within the current financial reality, the report highlighted.

Home equity line of credit (HELOC) volume was down slightly between the third and fourth quarters of last year but remained elevated by 9% on year-over-year basis.

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“With many predicting home prices to decline this year, HELOC demand may fall; still, as shown by Maxwell data, volume currently remains strong, and lenders may find continued opportunity in this loan type,” the report stated.

Balances on HELOCs rose for seven consecutive quarters and stood at $360 billion in Q4 2023, according to recent data from the Federal Reserve Bank of New York.

While HELOC balances have been on the rise, a boon for existing homeowners, borrower age trended up from Q3 2023.

All age groups of 44 and below saw their borrower share decline from Q3 to Q4, while age groups of 45 and above increased their shares. Still, those 44 and younger account for 57% of all borrowers.

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“Today, the Baby Boomer generation holds almost $19 trillion of American real estate — more than twice as much as millennials,” Paasonen said in the report. 

“In terms of units, that means Boomers own nearly 40% of the housing stock in our country. As Boomers age, they’ll likely downsize or move into retirement communities and facilities, freeing up millions of homes across the country. At the same time, we’ll witness one of the largest wealth transfers from Boomers to their children, growing investable assets that their children will use for down payments on houses.”

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Property Chomp’s Take:

The mortgage market appears to be turning around, signaling potential relief for borrowers, but younger borrowers still face challenges in affording homes, according to a lending report from Maxwell. The report revealed that loan volume between the third and fourth quarters of 2023 declined by 21%, a much smaller drop compared to the 37% decline seen in the same period in 2022. Additionally, loan volume in the fourth quarter of 2023 increased by 1% year over year, marking the first year-over-year loan growth since the first quarter of 2022.

Maxwell’s report, which analyzes data from its business intelligence platform, indicates that the mortgage industry recovery is in its early stages. The report also highlights that the average monthly income of homebuyers has increased by nearly 30% over the past three years, reaching a record-high of $12,100 in December 2023. Similarly, the average loan amount rose to $345,000 in the fourth quarter of 2023.

However, the report notes that younger borrowers have been finding it increasingly difficult to enter the housing market due to affordability issues. As a result, they lost traction in the fourth quarter of 2023. The report suggests that if home prices and lending costs moderate in 2024, there could be a significant increase in demand. However, low inventory may impede this demand.

The report also highlights the popularity of home equity lines of credit (HELOCs) among borrowers. While HELOC volume decreased slightly between the third and fourth quarters of 2023, it remained elevated by 9% compared to the previous year. The report suggests that even if home prices decline this year, there may still be opportunities for lenders in the HELOC market.

Furthermore, the report reveals that balances on HELOCs have been rising for seven consecutive quarters, reaching $360 billion in the fourth quarter of 2023. However, it also notes a shift in borrower age, with the younger age groups experiencing a decline in their share of borrowers, while the older age groups saw an increase. Despite this shift, those aged 44 and below still account for 57% of all borrowers.

Looking ahead, the report predicts that as the Baby Boomer generation ages, they will likely downsize or move into retirement communities, freeing up millions of homes in the country. Additionally, there is expected to be a significant wealth transfer from Boomers to their children, which could provide a boost to their children’s ability to make down payments on houses.

In summary, while the mortgage market is showing signs of improvement, younger borrowers continue to face affordability challenges. The report suggests that if home prices and lending costs moderate, there could be increased demand in the market. Lenders should also be prepared to capture available loan volume. Additionally, the report highlights the potential opportunities in the HELOC market and the upcoming wealth transfer from the Baby Boomer generation to their children.

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