Fitch Ratings-New York-11 October 2022: The U.S. housing market appreciation and the rapid increase in mortgage rates have reduced housing affordability and accelerated the plunge of mortgage origination volumes. These trends have exacerbated industry overcapacity, further pressuring nonbank mortgage lenders’ financial results and leading to operating losses, testing even the best-positioned lenders, Fitch Ratings says.

Issuers with leading market positions within their respective lending channels should be able to withstand current market conditions and potentially gain share aided by scalable technology platforms, diversification from servicing cash flows, balance sheet strength and access to liquidity that affords them the flexibility to mitigate operating losses. Industry consolidation and the exit of weaker, sub-scale players lacking capital and liquidity to absorb operating losses is expected to continue.

Home price appreciation of around 40% from median 2019 levels according to Black Knight was partly due to the transition to remote work, which drove 15 percentage points of national housing price growth during this time, according to the San Francisco Fed. Median U.S. home prices, while still up 12.1% YoY, fell 0.98% sequentially in August, after falling 1.05% in July, the largest monthly declines since July 2009, according to Black Knight. Housing inventory is also rising due to lack of affordability and waning consumer confidence. A significant portion of the housing market is locked into historically low mortgage rates, with transaction volumes expected to remain low over the medium term.

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