U.S. mortgage originations are projected to grow moderately in 2025, despite continued economic uncertainty and elevated interest rates, according to TransUnion’s newly released credit insights in the fourth quarter of 2024.
After years of sluggish origination growth due to inflation, high borrowing costs, and a tight housing market, mortgage originations are expected to rise to 5.7 million in 2025 from approximately 4.6 million in 2024, with the bulk coming from purchase loans.
“Consumers continue to live their lives—people are continuing to buy and sell their homes,” said Satyan Merchant, TransUnion SVP of Autos and Mortgage. “Even in 2024, despite higher interest rates, we saw some amount of refinance activity, and that will continue in 2025, whether it’s people changing terms, refinancing from an adjusted rate mortgage to a fixed-rate loan, or moving from [FHA] to [GSE] loans.”
Market trends and delinquencies
Purchase originations accounted for 82% of all mortgage originations in Q3 2024, the most recent period with available data. That’s significantly higher than the pre-pandemic five-year average of 68%. Refinancing activity also surged, with rate and term refinance originations jumping 174% year-over-year. Homeowners who secured mortgages at higher rates in previous quarters have increasingly taken advantage of the lowest interest rates in two years.
A swing to a four-to-one ratio of purchase versus refinance is primarily driven by the interest rate environment, Merchant added.
“It’s been a long time since the industry has been in a higher interest rate environment like this,” he said.
Rising non-mortgage debt among homeowners—up 7% year-over-year—could create financial strain in the coming quarters, the report said. FHA borrowers are the most likely to be under duress.
“Year-over-year, we are seeing an uptick in expected mortgage delinquencies,” Merchant said. “However, we have to remember that we’re coming off historically low delinquency rates. Even with recent increases, we’re still at very low historical standards.”
Lender caution, borrower behavior
Lender caution remains a defining characteristic of the current mortgage landscape. While origination volumes are improving, underwriting standards have tightened in response to ongoing macroeconomic uncertainty. Borrowers are adjusting as well, with an increasing number opting for alternative mortgage products, including adjustable-rate mortgages, to navigate affordability constraints.
Merchant said lenders with strong mortgage broker networks should fare well in 2025.
“Consumers going through a purchase cycle often seek out experts for consultation, and in many cases, brokers help them through that process,” he said. “Some lenders that focus on the broker channel tend to do better in a purchase market.
“We don’t have statistical correlation data on whether a higher purchase market directly leads to more broker activity, but we do know that lenders with strong broker networks are seeing success in the current environment.”
The broader consumer credit market is showing signs of stabilization, with mortgage and auto originations seeing year-over-year increases. Meanwhile, credit card originations continued to decline in Q3 2024, though at a slower rate than in previous quarters. Delinquency rates across different credit products remain mixed, with credit cards showing the first year-over-year decline in serious delinquency rates since 2020, according to TransUnion.
Housing market outlook
Despite some positive signs, the housing market still faces significant affordability challenges. Elevated home prices and limited inventory continue to be barriers for many prospective buyers, particularly younger and first-time buyers. While mortgage originations are expected to increase, overall demand remains suppressed compared to historical norms.
“(Buyers) swallow the pill and take the higher interest rate when they purchase their home, but that also means they’re in a population that will be in the market to refinance if rates drop—even if only moderately, to around 6% or 6.5%,” said Merchant. “Housing inventory continues to be a challenge across the country, and affordability remains a major issue. On the new home side, some builders are offering incentive rates or paying down points for buyers. That’s helping drive some purchase originations despite the affordability constraints.
The Federal Reserve’s monetary policy decisions in 2025 will play a crucial role in determining the trajectory of mortgage rates. If rate cuts are delayed, affordability concerns may persist, potentially dampening the housing market’s recovery, Merchant added.
This year “is shaping up to be a year of stability,” he said. “Lenders’ number one wish is lower interest rates, but number two is stable interest rates—not increasing rates. The Fed’s signals suggest nothing dramatic in either direction, which could provide a more predictable environment for originations.”
