New York Fed finds big slowdown in new mortgage creation in first quarter

FILE PHOTO: A "For Sale" sign is posted outside a residential home in Seattle

By Michael S. Derby

NEW YORK (Reuters) -Americans' appetite for taking on new mortgages slowed substantially during the first quarter, data released by the New York Fed on Monday showed, amid a modest gain in overall household borrowing levels at the start of the year.

Overall household debt levels rose by 0.9% to $17.05 trillion during the first three months of the year, the bank said in its latest Quarterly Report on Household Debt and Credit, noting that overall debt levels are nearly $3 trillion higher than in 2019 before the onset of the coronavirus pandemic.

New York Fed researchers view overall debt levels as relatively healthy, with some pockets of nascent concern. The data does not capture much in the way of an impact that may have ensued from banking sector stress that kicked off in March, the researchers said.

The central bank data showed how the sharply higher interest rate environment the Fed has been putting in place over the last year to lower high inflation has weighed on the housing market.

The bank said new mortgage debt created during the first quarter fell to the lowest level since 2014 at $324 billion, while overall mortgage debt for the quarter stood at $12.04 trillion, up $121 billion from the prior quarter.

That compares with $498 billion in mortgage originations in the final three months of 2022 and a peak of $1.218 trillion in new mortgages during the second quarter of 2021.

But even as the housing market has cooled down, its strong performance over the course of the recovery from the most acute phase of the pandemic has set up the economy for strength.

The bank said in its report that 14 million mortgages were refinanced between 2020 and 2021. Five million borrowers extracted $430 billion in home equity during the period and 9 million refinanced without extracting equity, creating an aggregate $24 billion annual savings in housing costs.

While the end of low mortgage rates discourages people who already have a low mortgage rate from deciding to sell their house, bank economists said in a blog post accompanying the debt report that “the improved cash flow from the recent refinance boom will potentially provide significant support to future consumption.”

The New York Fed said in its report that delinquency rates on housing and student debt levels remains low, although delinquency rates from credit cards and auto loans increased, testing levels seen before the pandemic.

(Reporting by Michael S. Derby in New YorkEditing by Chizu Nomiyama and Matthew Lewis)