Housing Market 2023: Prices Are Now So High That Banks Are Losing Money on Mortgages

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One more indicator that the housing market is on a shaky foundation: Banks are now losing money on mortgages. In a new report from the Mortgage Bankers Association (MBA) released this week, it’s said that independent mortgage banks and subsidiaries of chartered banks had record low profits throughout 2022.

In fact, financial institutions lost an average of $301 per loan they finalized in 2022 — in stark contrast to the $2,339 profit per loan that was reported in 2021 — equating to a 113% decrease, per Business Insider. The MBA noted this is the first time it’s seen profits in the red since reporting began in 2008.

It’s yet another result of a very tenuous housing market in which there aren’t many available properties. Buyers and sellers are both holding out with interest rates soaring, now nearly double the 2-3% fixed APR the market had seen in recent years.

As Business Insider detailed: “Banks and other mortgage companies each financed an average $2.6 billion in loans in 2022, roughly half the $5 billion figure for 2021.” As well, the cost to finance a loan has gone up significantly, increasing by 23% over 2021.

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“The rapid rise in mortgage rates over a relatively short period of time, combined with extremely low housing inventory and affordability challenges, meant that both purchase and refinance volume plummeted,” Marina Walsh, vice president of industry analysis for the MBA, was quoted as saying in a press release. “The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan.”

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The other glaring finding that the MBA report shared is that 2022 represented a surge in cost for first-time homebuyers seeking financing. As The Hill indicated, the average cost was $323,780 in 2022 compared to $298,324 in 2021. This figure represented the biggest single-year jump in cost in the history of the MBA’s report.

But the 2022 findings may not be reflective of the swings to come in 2023, as many experts are hopeful things will start to normalize in the latter half of the year. As GOBankingRates has reported, in February, the median U.S. home price finally came down after a decade of growth. Further, the rise of new builds after the pandemic slump is stirring activity in the market.

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