Jump in mortgage borrowings fuels US house price boom

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US economy updates

Americans increased their mortgage borrowings in the second quarter of the year, adding fuel to a housing boom that has seen US prices surge at a record pace.

Data from the New York branch of the Federal Reserve showed that mortgage originations reached $1.2tn in the three months to the end of June, exceeding volumes seen in the previous three quarters and well above the $752bn level reached in the final quarter of 2019. Taken together, mortgage originations over the four quarters to June 30 — which include refinancing — amounted to nearly $4.6tn, a historic high. 

That helped to push mortgage balances to more than $10tn — after a $282bn increase over the preceding three months — meaning about 44 per cent of the outstanding mortgage balance was originated in the past year. 

US home prices have bounded to new heights, boosted by ultra-low mortgage rates that now hover around 3 per cent.

The S&P Corelogic Case-Shiller national home price index jumped 16.6 per cent in May from a year earlier, the biggest gain since at least 1988 and well above the previous record set in April, when prices gained 14.8 per cent on a year-on-year basis.

Policymakers have been watching the run-up in home prices closely, with the US central bank coming under scrutiny for its $40bn monthly purchases of agency mortgage-backed securities as part of its broader $120bn bond-buying programme. 

Chair Jay Powell recently pushed back on the idea that the Fed’s policies were disproportionately aiding the housing market, affirming instead the central bank’s commitment to maintaining the pace of its purchases until it achieves its goal of a more inclusive recovery.

“[Asset purchases] are not intended to provide support directly to any industry, including the housing industry,” he said at a congressional hearing in July. “That said, low interest rates and asset purchases like that do keep longer-term interest rates low. They do support low mortgage rates, which does [support] the housing industry.”

Americans ramp up mortgage borrowings

The 2.8 per cent increase in mortgage balances in the second quarter, coupled with a 2.2 per cent increase in credit card balances and a 2.4 per cent increase in auto balances, lifted overall household debt by more than $300bn by the end of June to nearly $15tn. At 2.1 per cent, the quarterly increase in aggregate balances was the largest since the final quarter of 2013, leading to the biggest nominal increase since the second quarter of 2007.

Credit card balances grew by $17bn, offsetting a drop in student loan debt by $14bn to $1.57tn.

“We have seen a very robust pace of originations over the last four quarters with new extensions of credit for mortgages and auto loans combined with rebounding demand for credit card borrowing,” said Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed.

“However, there are still 2m borrowers in mortgage forbearance who are vulnerable to financial distress once the forbearance programmes come to an end,” she added.

Forbearance policies put in place at the onset of the pandemic have helped to keep delinquency rates low, according to the New York Fed’s findings. The share of outstanding debt that was in some stage of delinquency has fallen by 2 percentage points since the end of the 2019, hovering around 2.7 per cent.

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