Housing Market Makes a Comeback

Americans took advantage of falling rates as they added billions of dollars worth mortgages in the fourth quarter, data from the New York Fed shows, and experts told Newsweek what that means.

Mortgage balance on people's credit reports jumped by $112 billion in the fourth quarter of 2023 while originations, which tracks new mortgages in consumer credit reports, kept up pace seen in previous quarters, according to the New York Fed.

Analysts say that the increase in home loan balances is a sign of a rebound for the mortgage market after rates soared to two-decade highs in November.

"We are starting to see more demand come online as mortgage rates have fallen from that near 8 percent average at the end of October," Meagan Schoenberger, a senior economist at KPMG, told Newsweek.

An increase in construction has helped improve supply which has been a particular challenge of the housing market. The declining rates, which are now in the mid-6 percent range, have sparked activity, Schoenberger said, particularly among Millennials.

"Millennials are aging into their prime home buying years. So you can imagine, the lower that mortgage rates go, the more of those folks are going to be coming online to buy houses," she told Newsweek.

One housing economist told Newsweek that another dynamic may be at play in explaining why mortgage balances may have gone up.

"The fact that non-housing debt went up faster than housing debt makes me think that homeowners are tapping into their equity to pay down their high-interest debts (credit cards, auto loans, student loans, etc)," Daryl Fairweather, Redfin's chief economist, told Newsweek.

Schoenberger noted that late payments and delinquencies were slightly higher than during the COVID pandemic when a government-instituted moratorium helped homeowners delay their payments. But the rates were lower than before the pandemic.

"People are doing very well and able to service their debt," Schoenberger said.

One other trend that was revealed by the data from the New York Fed was that the quality of mortgage originations was strengthening.

Four percent of new mortgages were from buyers with good credit scores. The total amount of this segment of debt stood at $394 billion in the fourth quarter, while below the more than trillion dollar range seen between the second quarter of 2020 and the fourth quarter of 2021, it kept pace with the previous two quarters.

"Banks are certainly preferring people with higher credit scores. But ultimately, people are still servicing their debt, they're still paying off their mortgages," Schoenberger told Newsweek.

The data from the New York Fed was another signal of the resiliency of the American consumer, she added.

Recent economic news shows that Americans can get jobs if they want, are earning more and spending, fueling growth, despite an environment of high interest rates that has pushed up borrowing costs across the country's economy.

"Rumors of the consumer's demise have been greatly exaggerated," Schoenberger said. "The mortgage market, in particular in this report, has remained remarkably healthy. That has both to do with the fact that the consumer is still doing very well. They still have jobs and they are able to pay off their mortgages."