LOS ANGELES — Despite near-record-low mortgage rates and the cheapest housing prices in eight years, home lending has slipped this year to the lowest level since 1997.
The laggard loan market can be explained in part by the slow economy, numerous foreclosures and the proliferation of "underwater" loans, those that exceed the value of their properties.
But other factors are compounding the problem, including so-called refi burnout — how many times, after all, can one refinance a home? — and a wave of people who have decided that homeownership isn't what it was cracked up to be.
"There is a burnout phenomenon," said Mortgage Bankers Association economist Michael Fratantoni.
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Though mortgage costs are at or near historic lows, most of the lucky homeowners who still have equity and solid finances have refinanced once or more and have long since locked in annual rates of less than 5 percent.
In 2003, as the housing boom took hold and 30-year fixed mortgage rates fell below 6 percent, refinancings propelled home lending to four times the current volume. And as the rate tumbled toward 5 percent and then smashed that barrier in 2009 for the first time since 1956, there was twice as much mortgage lending as now.
In addition, many would-be refinancers have been stopped by the declines in home prices, now back at 2003 levels, which has left them owing far more than their homes are worth.
The result of all this: Despite the confluence of lower home prices and rates, new mortgages are down by a third compared with 2010. Lenders will write about $1 trillion in home loans this year, the smallest total since 1997, according to the Mortgage Bankers Association, which projects home lending will fall even lower in 2012.
Some say the combination of falling home prices, tight credit in the aftermath of the financial crisis and the flood of foreclosure sales has undermined the traditional view of homeownership as the engine of financial success.
"The previous assumptions that housing is a good investment, or that home prices can only go up, or that all Americans should be able to buy a home, are being seriously challenged," Morgan Stanley housing analysts wrote last month in a study titled "A Rentership Society."
In the middle of the last decade, when the term "ownership society" was coined, the homeownership rate was nearly 70 percent, the report noted. If delinquent borrowers were excluded, it said, the current rate of 66.4 percent today would instead be 59.7 percent.