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Mortgage rates recently hit their lowest level since October 2016 and homeowners have been taking advantage, leading to the highest volume in mortgage applications since 2013, the Federal Reserve Bank of New York (the New York Fed) announced Tuesday.
Such activity in the lending sector has now led to mortgage originations reaching their highest level since Q4 2005 at $752 billion.
The significant gain means that total household debt increased by $193 billion over the course of the fourth quarter to a total of $14.15 trillion. With this gain, the total household debt has also reached a new benchmark — it is now $1.5 trillion higher (in nominal terms) than the last peak of $12.68 trillion in Q3 of 2008, just before the 2008 housing crash.
“Mortgage originations, including refinances, increased significantly in the final quarter of 2019, with auto loan originations also remaining at the brisk pace seen throughout the year,” Wilbert Van Der Klaauw, senior vice president of the New York Fed, said in a statement.
The increase is not just significant over the course of Q4, but for the entirety of 2019. First quarter mortgage originations began at $344 billion, rose to $474 billion in the second quarter, and ended the third quarter at $528 billion.
The New York Fed also reported that mortgage balances (the largest portion of household debt) increased by $120 billion in Q4 to $9.56 trillion while non-housing debt increased by $79 billion.
Although the increased volume of mortgage originations might suggest otherwise, credit standards actually became slightly more stringent during Q4. For newly originating mortgage borrowers, the median credit score was 770, 5 points higher than the median credit score in Q3 2019.
The New York Fed also issued an accompanying blog post analyzing the credit profiles and behaviors of first-time borrowers. Among other findings, data compiled in the blog post revealed that 17.4 percent of mortgages in early stages of delinquency progressed into 90+ days delinquent, and outstanding student debt increased $10 billion from Q3 2019 to a total of $1.51 trillion in Q4.
“The data also show that transitions into delinquency among credit card borrowers have steadily risen since 2016, notably among younger borrowers,” Van Der Klaauw added.
The full results of the blog post can be accessed here.