Eye On Housing
Household Debt and Credit reports, released by the Federal Reserve Bank of New York, show that mortgage balances, which make up the majority of household debt, increased by $141 billion in the third quarter of 2018 from the previous quarter to reach an outstanding amount of $9.14 trillion. They also show that mortgage originations increased by about $8 billion from $437 billion in the second quarter of 2018 to $445 billion in the third quarter of 2018. Mortgage originations are a component of mortgage balances, which are calculated by taking the previous quarter’s balance less paydowns and charge-offs and adding newly originated balances. These originations data further show the distribution of the borrowers’ varying credit scores.
The credit scores’ series data have been relatively stable since the third quarter of 2015 and show that most originations come from borrowers with a credit score over 760, taking up about 57% of all mortgage originations. Then, trailing, are the originations of borrowers in the next lowest tiers of credit scores, those with credit scores of 720-759 and with credit scores of 660-719, both taking up a combined share of 35% of all mortgage originations in the third quarter of 2018. Finally, the lowest two tiers of credit scores, below 620 and between 620-659, together account for about 10% of all mortgage originations.
The third quarter of 2018 results from the Mortgage Bankers Association’s National Delinquency Survey (NDS) would also suggest that reductions in the unpaid principal balances of “seriously delinquent” loans (e.g., bringing them current or reducing the severity of their delinquency) are not great enough to offset the increase in the balances created by mortgage originations. The below graph shows a compilation of the NDS Survey results.
As can be seen the above graph, the categories that experienced the greatest changes were 90+ days and foreclosure inventory, which follow the trajectory of the housing bubble that burst in 2008. The series “Seriously delinquent ” is a composite metric, consisting of the sum of the 90+ days rate and the foreclosure inventory rate.
September 2018, which marked the end of the third quarter of 2018, was also a month with unwavering builder confidence from the previous month. At the same time, though, the results from the mortgage lender sentiment survey by Fannie Mae showed a bearish trend in mortgage demand. Indeed, this skeptical view of the market was undoubtedly fueled by concerns over declining housing affordability, in terms of rising home costs, that showed their true colors when the HMI slipped to 60 in November and then to 56 in December. Forthcoming Household Credit and Debt reports by the Federal Reserve Bank of New York in the fourth quarter of 2018, to be released in February 2019, will either refute or validate such sentiments by the major mortgage lenders.
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