Jim Carney serves as ServiceLink’s vice president of market intelligence. In the below interview, he investigates the state of today’s housing market and the future of origination.
How mortgage rates have impacted the housing market, lenders and borrowers
We all understand that mortgage rates have increased dramatically over the last year. How has this impacted the housing and refinance market?
Our economic environment is unique in modern history. The coronavirus and the resulting supply chain challenges have resulted in significant disruptions from typical economic cycles. The housing market appreciation over the last 12-18 months is unprecedented. Per the Federal Housing Finance Agency (FHFA) U.S. home prices have risen 20.9% from Q2’2021 to Q2’22 – this is the highest increase since started tracking their Housing Index in 1975. Further, the next largest increase, 14.8% between Q1’78 and Q1’79 followed years of steadily increasing inflation and home levels. This rapid an acceleration of home values has never occurred. That said, housing prices may begin to normalize. As of early October, home prices were posting the biggest monthly declines since January 2009, according to the latest Mortgage Monitor report from Black Knight. Annual home price growth rates are predicted to continue falling in coming months. However, even as prices fall, high interest rates will continue to limit affordability. And, of course, higher rates reduce demand in the refinance market.
What do these changes mean for lenders and their borrowers?
As rates have increased steadily this year, many borrowers thought they were postponing their refinancing plans until rates stabilized only to ultimately realize refinancing no longer made economic sense. Buyers, particularly first-time home owners, have seen their budget for a new home reduced or have even delayed the decision to buy a new or different home. A realtor.com survey this past spring stated that 23% of recent homebuyers stated the buying process drove them to extra therapy sessions – that anxiety has likely only increased as the market has been increasingly challenged.
For lenders, this means that the market has become increasingly competitive, and that the borrower experience is more important than ever. They need to focus on differentiating themselves to today’s borrowers, who crave less paperwork, more transparency, and time-savings. This is explained in ServiceLink’s homebuyers report. Additionally, they may need to shift their attention from the homebuying and refinance markets to other areas, like home equity.
How mortgage service providers can pivot for mortgage rate shifts
How can mortgage service providers help homeowners and lenders cope with the shift?
Homeowners are more eager than ever for lender support in this unique marketplace - and have a breadth of lenders to choose from. Lenders need to provide an optimal and comfortable customer experience for borrowers, complementing digital technologies with strong client service in order to stand out in the marketplace – and the right service provider can help with that. ServiceLink offers plug-and-play digital origination solutions for title, closing and valuation that allow lenders to up-level their borrower experience, without major tech investment. These solutions also help lenders optimize workflows, increasing margins in an environment where every efficiency gain matters.
Additionally, in this volatile market, it’s critical that lenders partner with stable providers, who they know will help them weather ups and downs. Because we’re a member of the Fidelity National Financial family, ServiceLink is able to provide our clients with stable strategic partnership.
Housing market predictions
What’s next for the housing market?
Unfortunately, my crystal ball is broken so I can’t be sure. The federal funds rate has increased by 225 basis points (bps) this year and economists are generally forecasting another 100- 125 bp increase by this January. There are a lot of factors that could influence whether the federal funds increase is larger or smaller, and when the federal funds rate will decrease. The current mortgage rates have largely “built-in” the higher federal funds rate expected in the near term. Over the next 6-12 months, these elevated mortgage rates could continue to slow down the housing market. That said, the MBA expects mortgage rates to peak in Q3’22 and new home sales to steadily recover from their historic low in Q2’22. Regardless of what happens, lenders can prepare for the future of origination by working with stable, innovative partners.