Mortgage Balances And Credit Card Debt Rise, While Mortgage Originations Decline
The newly released Q1 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) shows that in this current economic climate in which inflation remains at elevated levels and interest rates have risen sharply, consumers are increasingly turning to credit to manage their household budgets, leading to record- or near-record high balances in credit cards and unsecured loans. In addition the report showed that mortgage balances are at record highs while mortgage originations are near record lows.
“We have seen record levels of originations in credit cards and unsecured personal loans since mid-2021 as strong credit positions have allowed consumers access to additional products. As inflation rose to near 40-year high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “It remains to be seen whether these balances will continue to grow in the near-term, or if growth will slow as consumers moderate their pace of borrowing and if lenders more closely scrutinize consumers and potential risk when determining to whom they lend moving forward.”
In addition, while total mortgage balances reached a record level of $11.8T in Q1 2023, the slowdown in mortgage originations continued to accelerate, down from 2.9M in Q4 2021 to 1M in Q4 2022, representing a 65% YoY drop – the largest decline since TransUnion has been tracking. Within originations, purchases made up 86% of the volume in Q4 2022 with 900,000 originations (down by 45% YoY from 1.6M in Q4 2021). Refinance originations fell by 89% YoY from 1.3M to 143,000, the lowest level to date. This was driven by the dramatic decrease of rate and term refinances, which were down by 96% YoY from 588K in Q4 2021 to 24K in Q4 2022, and cash-out refinance originations, which were down by 83% YoY from 716K to 120K. Conversely, HELOC originations were up 7% YoY to reach 299K in Q4 2022, while home equity loan originations grew 31% YoY to 264K. Mortgage delinquencies ticked up YoY, with account-level delinquency (60+ days past due) growing 12% to 0.98% in Q1 2023, though still remaining at very low levels historically.
“The relatively higher interest rate environment has depressed mortgage refinancing in particular. Interestingly, cash-out refinance hasn’t been as impacted as rate and term refinance,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “This, coupled with the increases observed in HELOC and home equity loan originations, indicates that homeowners are still interested in tapping their home equity, even at higher interest rates. It is also encouraging that purchase originations remain near the lower end of the normal activity range, indicating that consumers are continuing to purchase homes even in this higher-rate environment. While delinquency levels remain below historical norms, this marks the fourth consecutive quarter of increase– a trend worthy of continued monitoring in 2023 as macroeconomic volatility and increased cost-of-living may be starting to affect delinquencies.”
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