KBRA Financial Intelligence

Home Sales Stumble as Bank Mortgage Lending Continues to Lag

After several months of building momentum in the final quarter of 2025, the National Association of Realtors’ (NAR) count of existing home sales suddenly tumbled to a 17-month low in January. The NAR said “below-normal temperatures and above-normal precipitation” made it difficult to identify the underlying driver of the sudden drop-off. Whatever the cause, weakness in existing home sales, which comprise the vast majority of residential real estate transactions, may have dented mortgage lending volumes in January.

KBRA Financial Intelligence (KFI) has highlighted relatively slow growth in residential mortgage loans compared to other categories of U.S. bank lending throughout the past several quarters. According to new Federal Financial Institutions Examination Council (FFIEC) call report data, 4Q 2025 saw a powerful 5.9% rate of year-over-year (YoY) growth in total bank lending—the fastest pace recorded in almost three years—while mortgage loans expanded by just 1.9%. Due to consistently subdued growth in mortgage originations, the proportion of residential mortgage lending to total outstanding bank loans has fallen from a recent peak of 23.1% in 1Q 2024 to 22% in 4Q 2025.

At the same time, the amount of mortgage loans falling into delinquency is on the rise. Among more than 4,200 U.S. commercial and savings banks reporting residential mortgage holdings in 4Q 2025, the average residential mortgage delinquency rate was 1.78%, up 24 basis points (bps) versus the prior quarter, and exceeding the five-year moving average for a fifth straight quarter. Though delinquency among residential mortgage loans remains historically low, and household equity in real estate assets remains historically high, the sustained uptick in past-due mortgage loans represents a gradual reversal of the downtrend witnessed throughout most of the past decade.

The ongoing slowdown in new mortgage originations and acquisitions could contribute to rising delinquency rates. As of its latest release, the average outstanding mortgage loan recorded in the Federal Housing Finance Agency’s (FHFA) National Mortgage Database is now 77 months old, reaching a series high. That loan age is up from 66 months just two years ago, which was proximate to the five-year moving average at that point. As the average age of loans in a portfolio increases, delinquency risks may rise because older loans generally carry a higher likelihood of financial strain. Borrowers who were creditworthy at the time of origination may face financial challenges over the life of their loan, increasing the potential for delinquency. Additionally, high-quality borrowers often prepay or refinance their loans, leaving a greater concentration of higher-risk loans in the portfolio when new inflows of mortgages slow.

Soft activity in the housing market may be traced in part to the lingering impact of a rapid shift from ultra-low mortgage rates in 2021 to multi-decade-high rates within the span of just two years. Although Freddie Mac data indicates that the average 30-year mortgage rate has now remained above 6% since September 2022, most U.S. homeowners are still locked into fixed-rate loans at significantly lower rates. According to the National Mortgage Database, the average rate on outstanding mortgage loans was just 4.4% in 3Q 2025—the most recent available data. Many potential sellers are reluctant to give up their favorable rates for higher ones tied to new purchases, constraining housing market activity in the near term.