Average Size of Purchase Loan Application at Record High
According to the Mortgage Bankers Association (MBA), the increase in average loan sizes for purchased mortgage applications is outpacing the recovery in housing prices. The MBA’s weekly application survey reported that the average purchase loan size reached $307,700 – the highest loan size in the history of the survey.
The increase in loan size could be the result of a number of factors including rising home prices, historically low mortgage interest rates, and/or a continued lack of economic growth.
Historically, the federal government has artificially expanded homeownership by loosening underwriting standards for FHA insured loans, increased the buying of risky mortgages by Fannie and Freddie, and/or suppressed interest rates. But as we saw in the 2007-08 housing bubble and subsequent collapse, government intervention leads to burdensome mortgages and market instability as homeowners fail to make payments.
The American dream involves owning a home, not owning a large mortgage. Real estate professionals should be considered about this news as excessive mortgage debt undermines the stability of the housing market.