Where Have All the Loans Gone? The Impact of Credit Availability on Mortgage Volume

Abstract

The total number of purchase mortgages originated in 2012 is considerably less than half of peak levels and is down 44% from 2001 levels. The authors estimate that a large portion of the drop—as many as 1.2 million loans in 2012 alone—can be attributed to low credit availability and find that African-American and Hispanic borrowers have been disproportionately affected by the credit box tightening. An overly tight credit box means fewer individuals will become homeowners at exactly the point in the housing cycle when it is advantageous to do so, depriving these individuals of the chance to build wealth. It also means the housing market will recover more slowly, because there is a more limited pool of potential buyers for each home. Ultimately, it hinders the economy through fewer new home sales and less spending on furnishings, landscaping, renovations, and other consumer spending that goes along with home purchases.