Americans borrowed more than ever to buy homes in 2021.
Mortgage lenders issued $ 1.61 trillion in purchase loans in 2021, according to the Mortgage Bankers Association. This is a slight increase from $ 1.48 trillion in 2020 and more than the previous record of $ 1.51 trillion in 2005.
The boom in mortgages reflects the booming housing market and the rise in prices in it over the past year. Many of the forces that pushed Americans into the housing market in the first months of the plague – low interest rates and aspirations for larger homes – continue to raise prices and mortgage balances. More than that, many Americans received raises and padded their savings in the plague, and this gave them the ability to purchase.
“All of that extra revenue goes somewhere, and a lot of it has gone to housing,” said Taylor Marr, deputy chief economist at Redfin Corp., a real estate agency.
The rate of increase in home purchases has slowed in recent months but remains close to record levels. House prices rose 19.1% in the year ending October. Existing home sales in 2021 were expected to reach their highest level since 2006.
A strong employment market and wage increases in many industries have caused some potential home buyers to flock to the housing market. The salaries of all private sector workers rose 4.6% year-on-year in the third quarter, according to the Bureau of Employment Statistics.
“Buying a home is really a statement of confidence in the employment situation, in the financial situation, in the family situation,” said Mike Partentoni, chief economist at the MBA.
Most of the millennials
Neil Kumar began looking for a home this summer after getting a new job with a significant pay rise. He found a home in a community about 48 miles outside his hometown of Austin, Texas. Without the raise, Kumar says, he could not afford the payments on the house, which cost $ 405,000.
Younger buyers like Kumar, who is 27, have helped bolster the housing market in recent years. Millennials, born in the early 1980s to mid-1990s, submitted 67% of their first mortgage applications in the first eight months of 2021, according to CoreLogic.
Kumar received the keys to his home in late December. “It was a pretty crazy feeling,” he said. “Like, sailing, it’s really happening.”
Growth in mortgage purchases partially offset a decline in refinancing, which averaged $ 2.3 trillion in 2021 from $ 2.6 trillion a year earlier. Total lending starts have dropped to about $ 3.9 trillion compared to the peak of $ 4.1 trillion set in 2020.
The rise in mortgage rates has slowed the wave of refinancing that has driven the boom in mortgage lending since the spring of 2020. As interest rates rise, fewer homeowners can lower their monthly payments by refinancing. The Federal Reserve is expected to raise interest rates three times in 2022, which will help push mortgage rates even higher.
About 59% of the $ 3.9 trillion in mortgages issued in 2021 were refinancing, down from 64% in 2020. The refinancing rate is expected to drop to 27% by 2023, and the volume is expected to drop to about 63% by 2022.
Economists do not expect raising interest rates to deter potential home buyers. The average interest rate for a 30-year mortgage is still around 3%, low by historical standards.
Still, the rise in house prices was greater than the rise in wages and low inflation rates and took home ownership out of the reach of many Americans.
Mortgages are less achievable relative to salaries compared to any other time since 2008, according to the Atlanta Federal Reserve. In early 2021, Americans needed about 29 percent of their income to cover their mortgage payment at a median price, the Atlanta Fed estimated. In October, this figure rose to 33%.