Mortgage lending is down sharply nationwide as interest rates rise, but the Philly area bucks trends

In the beginning of 2022, the number of new home loans nationwide dropped faster than it has in years, as the average 30-year fixed mortgage rate rose from about 3% to 4.67%. But in the Philadelphia region, the number of mortgages grew.

Nationwide, lenders originated 2.71 million home loans in the first quarter of this year, according to a report released Thursday by the real estate data firm Attom. That number was down 32% from the same time in 2021 and represents the largest annual drop since 2014, according to Attom.

The drop represents the largest quarterly decrease since 2017, according to Attom. And the number of new mortgages was down for the fourth straight quarter.

» READ MORE: Rising mortgage rates mean home buyers now pay hundreds of dollars more per month

The nationwide drop in residential lending early this year was in stark contrast to the period from early 2019 through early 2021 when activity nearly tripled, according to Attom. Mortgage rates now are high enough that fewer homeowners are refinancing their mortgages and fewer potential home buyers are applying for loans.

The decrease in home loan activity is another indication that the overall housing market is cooling. Elevated mortgage rates, limited home supply, and rising inflation are among the factors that could continue current trends.

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But the Philadelphia metropolitan area bucked national trends in lending activity early this year. The region was one of only three of the 216 studied where the total number of mortgages that lenders issued increased from the last quarter of 2021 to the first quarter of this year. The number increased here by 11%, more than the other two metros, Laredo, Texas, and Sioux Falls, S.D.

The Philly metro area had the biggest increase in refinanced loans from the fourth quarter of 2021 to the first quarter of 2022. Refinances were up nearly 8%. The region also was one of only 11 metro areas where purchase loans increased during this period.

Last week, the average 30-year fixed mortgage rate was 5.09%, according to the government-backed mortgage buyer Freddie Mac. The average rate has been creeping down in recent weeks, but it’s still much higher than last year. Nationwide, fewer refinances are driving the overall number of home loans lower.

» READ MORE: Thinking of refinancing your mortgage? Do your homework before you jump in.

Refinances were a brisk business earlier in the pandemic, when mortgage rates fell to record lows, and homeowners could potentially save hundreds of dollars on monthly payments. As mortgage rates rise, refinancing a home loan makes less financial sense. The annual drop in the number of refinanced mortgages was the largest since 2014.

While the national drop in refinancing was no surprise, experts didn’t expect such a drop in loans among home buyers, said Rick Sharga, executive vice president of market intelligence at Attom.

“Many forecasts expected purchase loans to remain strong in 2022 and even increase in both the number of loans originated and the dollar volume of those loans,” he said in a statement. “The weakness in purchase loan activity shows just how much of an impact the combination of escalating home prices and rising interest rates have had on borrower activity this year.”

» READ MORE: Average long-term US mortgage rates edge down, still over 5%

At the start of the year, lenders nationwide issued about one million mortgages to buyers, down 12% from last year, according to Attom.

Last week, mortgage applications fell 6.5% from the week before, according to the results of a nationwide Mortgage Bankers Association survey released Wednesday. The association’s measure of loan application volume fell to its lowest level in 22 years.

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months,” Joel Kan, the association’s associate vice president of economic and industry forecasting, said in a statement. “These worsening affordability challenges have been particularly hard on prospective first-time buyers.”