Housing Market 2023: Banks are losing money on mortgages

Housing Market 2023: Prices are now so high that banks are losing money on mortgages

Banks are now losing money on mortgages. In a new report from the Mortgage Bankers Association (MBA) released this week, independent mortgage banks and subsidiaries of approved banks are said to have posted record low profits throughout 2022.

Financial institutions lost an average of $301 per loan they closed in 2022 — in stark contrast to the $2.339 profit per loan reported in 2021 — equating to a decline of 113%, according to Business Insider. MBA notes that this is the first time it has seen earnings in the red since reporting began in 2008.

It is another consequence of a fragile housing market, as few properties are available. Both buyers and sellers are charged with rising interest rates, now nearly double the fixed 2-3% APR the market has seen in recent years.

As Business Insider puts it: “Banks and other mortgage companies each funded an average of $2.6 billion in loans in 2022, nearly half of the $5 billion figure for 2021.” Also, the loan financing cost has increased significantly, increasing by 23% over 2021.

“Rapidly rising mortgage rates over a relatively short period, combined with declining housing stock and affordability challenges, means that buying and refinancing volumes have dropped significantly,” Marina Walsh, vice president of industry analysis at MSc, is quoted as saying. Business Administration said in a news release. “The excellent profits of the past two years have been squandered by a combination of lower volume, lower revenue, and higher costs per loan.”

The other stark finding shared by the MBA report is that 2022 marks a rising cost for first-time homebuyers seeking financing. Hill noted that the average price was $323,780 in 2022 compared to $298,324 in 2021. This figure represents the largest single-year cost jump in the history of the MBA report.

However, the results of 2022 may reflect something other than the upcoming fluctuations in 2023, as many experts hope that things will start to recover in the last half of the year. As reported by GOBankingRates, in February, the US median home price finally fell after a decade of growth. Moreover, the emergence of new buildings after the pandemic recession has stirred activity in the market.