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New debt created by first-time homebuyers transitioning into homeownership and existing homeowners that are upgrading to larger homes growing a rapid pace, meanwhile, home equity loan balances have cooled off thanks to borrowers paying off debts.
Equifax's National Consumer Credit Trends Report for February 2016 found that the total balance of outstanding first mortgages in January rose 2.1 percent year-over-year to more than $8.3 trillion.
"Home purchase activity accelerated in 2016 as economic conditions boosted consumer confidence," said Amy Crews Cutts, Chief Economist at Equifax. "When first-time homebuyers move into homeownership or existing homeowners upgrade to a larger, more expensive home, new debt is created. This trend is finally dominating the accelerated amortization from borrowers paying a little extra each month or paying their mortgages in full, and foreclosure activity is also greatly diminished."
On the other hand, home equity lines of credit (HELOC) debt seemed to decrease from last January. The report showed that HELOC debts decreased 3.7 percent from $514.2 billion to $495 billion from January 2015 to January 2016. In addition, home equity installments loan balances fell 5.1 percent from $138.5 billion to $131.4 billion over the same time period.
"With many HELOCs hitting their recast into amortization we are seeing increased payoffs, reducing the debt and numbers of HELOCs outstanding. About 20 to 25 percent of HELOCs active a year prior to their recast anniversary will payoff and close within the year after date. Originations of new loans are not keeping pace with the payoffs."
Existing first mortgage numbers rose 0.4 percent year-over-year in January to reach 50.1 million, while at the same time, HELOCs and home equity installment loans declined 3.2 percent and 2.5 percent, respectively.
The Equifax report showed that the total number of new first mortgages originated January 2015 to November 2015 was 7.60 million, up 43.2 percent from a year ago. The total balance of first mortgages originated in that same time was $1.79 trillion, an increase of 56.7 percent. The severe delinquency rate among first mortgages, or balances that are 90 days past due or in foreclosure, was 1.75 percent in February 2016, down from 2.50 percent one year ago.
The total number of new home equity installment loans originated January 2015 to November 2015 was 760,900, up 32.4 percent year-over-year, while the total balance of new loans was $25.1 billion, an increase of 25.2 percent. The severe delinquency rate for these loans is 1.63 percent, down from 2.12 percent same time a year ago.
From January 2015 to November 2015, the total balance of new HELOC loans was $135.3 billion, up 21.6 percent from same time a year ago. In that same time, the total number of new loans originated was more than 1.29 million, an increase of 13.1 percent, Equifax said. The severe delinquency rate for these loans is 1.34 percent, down from 1.49 percent same time a year ago.
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