Following the real estate bubble burst, mortgage lenders implement much stricter standards for borrowers, making it more difficult to qualify for a home loan.
Although the financial standings of borrowers improved so far this year, a number of prospective borrowers have been held back from making the transition to homeownership. This resulted in a significant drop in mortgage originations in the third quarter.
During the three-month period, mortgage records show the total home loan origination dollar volume hit $120 billion, while home equity lines of credit totaled $16 billion, according to a report from the Federal Reserve Bank of New York. As a result, total mortgage debt reached its lowest level recorded since 2006, at $8.03 trillion.
Despite fewer consumers saving on mortgages, borrowing for auto and student loans as well as credit cards continued to surge.
"The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position," said Federal Reserve Bank of New York senior economist Donghoon Lee. "As consumers feel more comfortable, they may start to make purchases that were previously delayed."
Activity could see further decline at 2012's close
The previous data only accounts for activity in the third quarter. But as the housing market enters the fall and winter seasons, which traditionally yields fewer transactions, mortgage volume could experience further declines.
In October, new-home sales fell 0.3 percent from the previous month, according to a report from the Department of Commerce. This could indicate the cold weather sales slump has already set in.
"The Commerce Department doesn't note any specific reasons for the downward revision to September but it does note that Hurricane Sandy had only a minimal effect on October, hitting at month end and in an isolated area of the country," said real estate experts from Econoday.
Despite the drop, the new-home sales rate was nearly 17 percent higher than it was in October 2011, the report said. Additionally, as the real estate industry continues its recovery, property data shows the average sales price of new homes hit $278,900. However, this could the result of a thinning inventory, which represented a 4.8-month supply during the month at the current sales pace.