Mortgage Credit Availability in June Fell to Six-Month Low As Housing Market Cools

Buyers seeking mortgages to finance home purchases may have reason to celebrate as a confluence of factors that make the market more favorable for mortgage notes, although tighter standards might put a slight damper on those developments. 

The overall housing market is showing signs of cooling off; though significant segments of the real estate market are still white-hot, increasing stock suggests the manic feeding frenzy of the past year may be settling down. Interest rates, meanwhile—though having risen some since President Joe Biden took office—remain historically low.

Building material prices, meanwhile, are dropping, and while experts say buyers won’t immediately reap the benefits of that trend, lower material prices could echo through the market eventually. Mortgage forbearance numbers are also down, indicating a favorable environment for homeowners and a continuing economic recovery.

Yet an ongoing overall decline in mortgage credit availability could have a depressive effect on the rate of mortgage uptake. The Mortgage Bankers Association said this month that mortgage credit availability “decreased in June,” a sign that “lending standards are tightening.”

“Mortgage credit availability in June fell to its lowest level since September 2020, ending more than half a year of increasing credit supply,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “The overall credit availability index remains close to 2014 lows, as mortgage credit has not recovered since the sharp downturn in the first half of 2020.”

MBA data show a steady rise in credit availability from early 2013 onward, followed by a steep cliff in beginning in mid-2020 as the world grappled with the unfolding COVID-19 pandemic. Availability began to expand again late last year before starting another dip in the last several weeks.

Those developments are reflected in the raw numbers of mortgage applications processed last month in the U.S.: Total new home applications declined by nearly 25 percent in June, the result of what Kan said was homebuyers encountering “stronger headwinds” in the market.

Historical data show credit availability has actually been significantly lower than rates that were seen at the turn of the century: MBA data show credit availability over roughly the last two decades peaking around early 2007, after which it plummeted drastically as the housing bubble burst and the recession wiped out a considerable chunk of the real estate market’s value.

Kan said the recent downturn in availability could be ameliorated to some extent by new homebuying programs. “We did see the addition of refinance programs designed to reduce costs for lower-income borrowers. But the full impact of those new loan programs remains to be seen,” he said.

In the meantime, there are further signs of relief for homebuyers and homeowners even as credit availability goes through a crunch: Refinancing terms continue to grow more favorable for mortgage holders, while housing construction last month exceeded projections, signaling potential increased housing stock in the near future.