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The US refinancing boom is over Quartz

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Americans rushed to refinance their home loans during the pandemic as the US Federal Reserve cut interest rates to near zero. Now that the central bank is reversing its covid-19 response, the number of homeowners refinancing their mortgages is plummeting.

The housing market is one of the first places to show the effects of the Fed’s inflation-fighting strategy. Mortgage rates, for example, rose from 3.2% in January to 5.27% in May. Commercial banks saw less demand for all types of residential real estate loans in April, even as banks eased lending standards, the Fed reported Monday.

New York Fed data released on Tuesday showed mortgage lending slowed in the first quarter. This is mainly due to the number of lenders refinancing their mortgages and falling off a cliff. But mortgages to buy a new home have also declined.

Many borrowers who were inclined to refinance likely have already done so, New York Federal Reserve researchers said on a background call.

Between higher interest rates and higher selling prices, as well as high gas prices and a volatile stock market, we are seeing our sales pull back, a Philadelphia-based homebuilder told John Burns Real Estate Consulting in its April survey of home builders.

Consumers are still spending for now

Even though mortgage refinancing slowed in the first quarter, Americans racked up more household debt than any first quarter since 2006. Overall, households added $266 billion in debt in the first quarter. They now owe $1.7 trillion more than before the pandemic, with household debt totaling $15.8 trillion.

As consumers take on more debt, there are also signs that they are finding it harder to pay them back. After crashing during the pandemic, delinquency rates are slowly rising on credit cards, mortgages, auto loans and home equity lines of credit. There was also a slight increase in new seizures.

For homebuyers with a big budget, this could reduce competition, but it also means buyers with tighter funds will be overpriced.

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