Bankers in St. Louis weren't surprised when mortgage data released this summer showed a drop in loans made between 2017 and 2018.
The declines, which occurred locally and nationwide, can be attributed to the rise in the 10-year Treasury yield in 2018, said Doug Schukar, chairman and CEO of DAS Acquisition Co. and USA Mortgage.
"That has immediate impact on fixed-rate mortgages," Schukar said. USA Mortgage's closing rate in January 2017 averaged 4.21%. By December 2018, the rate had risen to 5.32%.
But a shortage of affordable housing was another reason cited for the drop.
In the St. Louis metro area, loans made to buy single-family or small multi-family homes were down by almost 4%, after six years of steady gains, according to a Post-Dispatch analysis of Home Mortgage Disclosure Act data released in August.
"I have a pool of customers approved for loans, but I'm having difficulty identifying homes for them to purchase," Norton said. "It's a national shortage, and here in St. Louis you have some municipalities that are more challenged than others."
Refinancing also was down. Refinance loans, which borrowers use to essentially trade interest terms and rates on a debt, dropped by 23% nationwide and a whopping 54% in the St. Louis area.
This also didn't surprise area bankers.
"Refinance is dependent on rate trends," Schukar said. "The rates bottomed out right at the presidential election in 2016. The next day, they started their ascension."
The trade war and President Donald Trump's tweets about it also could be having an impact on the market, Norton said.
"He could say, 'Folks, it's huge, we're near a deal with China to end tariffs,' and then the stock market could take off, and everyone could sell out bonds, and we could see interest rates go up," Norton said. If rates go up, or consumers fear they will go up, home buyers could be less likely to take out a mortgage.
The housing market is closely watched by economists because housing downturns usually lead to recessions, said William Emmons, an economist at the St. Louis Federal Reserve Bank. But if that happens with this housing downturn, he doesn't expect it to be as catastrophic as the Great Recession.
Emmons, using the three previous recessions, studied the trajectories of four housing market indicators before each recession: 30-year fixed-mortgage rates, existing home sales, real house prices and contribution of residential investment to GDP growth.
They all showed a pattern that they went into contraction, relative to recent trends of their own," Emmons said. "One, two or three years in advance, they were contracting, as the economy went into recession. And they started to turn up again a year or so after the overall recession."
The St. Louis metro area, and the states of Illinois and Missouri, have not returned to the lending levels seen before the Great Recession.
"I don't know that everybody wants it to get back to that level, because a certain segment of the market, pre-recession, was based upon loans that never should have been made in the first place," Norton said.
Emmons agreed, and said because of other factors, such as a shrinking population in the St. Louis area and demographic changes, lending levels may never return to what they were formerly.
"It's a good thing if we never have another bubble," he said. "Some people still believe credit is too tight."
Schukar, on the other hand, who founded USA Mortgage in 2001, said anything's possible.
"Business has always proven to me to be a series of cycles," Schukar said. "You had a loosening of credit criteria and underwriting guidelines, which swelled the market, and then a contraction when it went too far. You're starting to see them loosen up again. There's no reason not to think those numbers will come back again full circle."
