Loan Originations Hit Record $4.4T in 2021

2021 was a record year for loan originations just slightly eclipsing 2020, according to Black Knight’s January Mortgage Monitor report…(Black Knight)

• Total loan originations hit $4.4 trillion in 2021, just slightly higher than the $4.3T in 2020.

• Purchases ended the year at 1.7 trillion (the highest level on record) and refinances were reported at $2.7T (slightly down from $2.8T in 2020).

Of the $2.7 trillion refinances $1.5T were rate/term and 1.2T were cash-outs…

• Rate-term refis were down 60% year-over-year while cash-outs were up 13%.

• At the end of 2022 cash-outs, as a share of refinance actiivty, were up to 60% from 36% in 2021.

Home price growth accelerated for the third consecutive month in January…

• Y-O-Y: The average home value increased 19% year-over-year, this is just half a percent from July’s all-time high.

• M-O-M: The average home value increased 1% from just December to January.

NOTE: Rising home prices along with rising rates means affordability is getting worse. The principal and interest payment required to buy the average-priced home is up 37%, or $417, year-over-year. It now requires 27.5% of the median household income to purchase the average home. This is, unfortunately, above the long-term affordability benchmark of 25%. (FYI: Before the great recession it hit 34%)

Record home price growth, rising rates, and an increase in cash-out refis has some people worried about history repeating itself. Are the crash bros finally going to be proven right are we headed for a housing crash? No, for two main reasons…

• EQUITY: Homeowners tapped $80B in equity thanks to cash-outs which was the highest such volume in 15 years aka right before the great recession. However, it is important to remember that homeowner equity increased by $446B in Q4. Not to mention that homeowners are tapping their available equity at roughly half the rate than at the prior peak.

• CREDIT SCORES: Average credit scores among cash-out borrowers have begun to pull back but remain above 740.

So while it is important to keep an eye on cash-outs they are showing no evidence of any cracks in housing or the overall economy.