The lowest mortgage loan delinquency rates since 2005, a reduction in the share of refinanced mortgages, and the return of home equity line of credit (HELOCs) are trends to look for in the mortgage industry in the next year according to TransUnion’s 2018 consumer credit forecast released on Wednesday.
Trend 1: Serious mortgage delinquency rates to fall
According to the forecast, the mortgage delinquency rate is expected to drop to 1.65 percent by the end of 2018, the lowest observed since 2005, down from a rate of 1.91 percent for Q3 2017.
“From a credit performance standpoint, mortgage loan delinquency rates are the biggest story and are expected to decline next year driven primarily by strong employment and rising home prices,” Matt Komos, VP of Research and Consulting at TransUnion said.
The forecast states that increases to the labor participation rate, median household income, and home equity levels are additional factors impacting lower mortgage delinquency rates.
Trend 2: Rising rates and refinancing
With interest rate increases expected in 2018, the forecast has projected continued reduction in the share of refinanced mortgages as a percentage of all mortgages. Industry forecasts have refinancing share dropping from 35 percent in 2017 to 28 percent in 2018.
“Many existing homeowners already having refinanced into a low-interest rate mortgage may be unwilling or unable to move up due to how expensive housing has become. That lack of mobility can put pressure on the supply of entry-level housing,” Joe Mellman, SVP and TransUnion’s mortgage line of business leader said.
Trend 3: Return of HELOCs
Home equity line of credit is set to make a comeback in 2018 with TransUnion forecasting approximately 1.6 million HELOC originations in 2018. That stands in stark contrast to the previous five-year period when less than half that number were originated. According to the forecast, as rising home prices see many more homeowners tapping into their home equity, the three largest uses for HELOCs will be:
- Debt consolidation to a lower interest rate
- Financing a large expense such as home improvement
- Refinancing an existing HELOC or Home Equity Loan
For more about the 2018 TransUnion Forecast, click here.