Availability of mortgage loans is at its lowest level in a decade

The availability of mortgage loans has fallen to its lowest level in a decade as lending tightens amid ongoing instability in the banking sector, according to data released Tuesday by the Mortgage Bankers Association (MBA).

MBA’s Home Credit Availability Index fell 0.9 percent in April to 99.6. A decrease in the index reflects tightening lending conditions while an increase indicates easing conditions.

“Real estate credit availability in April fell to the lowest level since January 2013, reflecting a tightening of broader credit conditions stemming from recent banking sector challenges and an uncertain economic outlook,” Joel Kahn, MBA Vice President and Deputy Chief Economist, said in a statement.

“The downturn was driven by lower demand for loan programs such as adjustable-rate mortgages, simplified cash-out and refinancing, and those with a lower credit score,” Kahn added.

The tight lending terms last month occurred amid greater distress in the banking sector, which led to the federal seizure and sale of a West Coast regional bank last week.

San Francisco-based lender First Republic was taken over by regulators and sold to JPMorgan Chase on May 1 after it struggled with the fallout from the collapse of Silicon Valley Bank and Signature Bank, which were acquired by the Federal Deposit Insurance Corporation (FDIC) in March.

However, Fed Chairman Jerome Powell said on Wednesday, after last week’s vote to raise interest rates again, that the banking sector has improved since the March turmoil and that the system is “sound and resilient.”

“There were three big banks from the start that were at the center of the tension that we saw in early March. All of that has been resolved, all depositors have been protected,” Powell said.

Kahn said that despite the pressure in the banking sector, inventory conditions remain a critical challenge in the housing market.

“Even with higher mortgage rates and lower credit availability, lack of inventory to sell remains the biggest hurdle to driving home buying growth this year.”