Demand for housing continues to be robust, with many potential homebuyers seeking to lock in mortgage rates before they rise further. Home sales in 2021 were strong, with 6.9 million home sales for the year, the highest level in fifteen years. Given the increase in mortgage rates, we expect housing demand to decline and home sales to decline to 6.7 million in 2022 and 6.6 million in 2023.
Given rising home prices and expectations of home sales, we project that home-purchase mortgages will rise to $2.1 trillion in 2022 and to $2.2 trillion in 2023. Mortgage rates are expected to continue rising and we expect refinancing activity to slow down. Our forecast foresees a decline in refinancing volumes from $2.8 trillion in 2021 to $960 billion in 2022 and to $535 billion in 2023.
Top Mortgage Industry Trends
Purchases will rise, while refinancing will fall
The MBA 2022 forecast provides key forecasts regarding the volume of attraction and refinancing.
According to the association’s forecast, the issuance of mortgage loans for purchase is expected to grow by 9% to a record $1.7 trillion in 2022. However, total lending is expected to decline by 33% as higher mortgage rates and fewer eligible homeowners reduce refinancing.
Housing prices will remain high
While the housing market has cooled somewhat, the continued shortage of supply is likely to continue to weigh on home prices. A recent study by Realtor.com shows a shortage of 5.24 million homes, up 1.4 million homes from 2019. This shortage is due to low inventories of materials and a shortage of skilled labor, and Fannie Mae economists predict these problems will continue.
Maintenance costs will rise in a more competitive market
The shift from refinancing to more purchases is likely to increase competition among lenders for their share of the purchases. Lenders will pay more attention to the maintenance side of their business in order to achieve financial success.
However, with a surge in cancellations from pandemic programs and millions of borrowers in need of loss mitigation strategies, service providers will face challenges that include meeting the needs of homeowners and CFPB requirements. These factors will make maintenance more difficult and costly.
Millennials will drive origination growth
Millennials, along with other growing households looking to increase space while rates are still low, are expected to drive much of the source housing growth next year. In fact, the MBA points to millennial households as the driving force behind an expected increase in purchases over the next two years.
As millennials lead the growth in lending, it is important to consider how borrower expectations may change. Expectations for speed, fluidity, and transparency are the foundation for these tech-savvy consumers, making the digital experience all the more important.
Current compliance requirements will remain strict
The Consumer Financial Protection Bureau (CFPB) will continue to scrutinize service personnel’s exit practices from the borrower’s abstinence program.
The CFPB and other leading regulators have announced new servicer expectations. Their announcement stated that they would finalize the flexible terms of service introduced due to the pandemic. As a result, service departments will now be responsible for meeting all requirements, including those related to deadlines.
Mortgage rates and other changes
Trends in the mortgage sector, for better or worse, tend to follow corresponding directions in the entire real estate market. But, when it comes to the forecast, there are a few key aspects to keep an eye out for:
- Lack of inventory
- Changing interest rates
- Rapid technology adoption
Following the pandemic, the first half of 2021 revealed the lowest recorded housing inventory in many markets in the United States. The construction of new homes, like so many other production processes, was affected by shortages in building materials such as concrete and timber, resulting in a significant drop in new homes for sale.
Furthermore, most people spent more time at home in 2020 than at any other period in modern history. As houses have been converted into offices and schools over the last year, many individuals consider relocating, being in urge for additional room.
Typically, this dynamic benefits the seller since, when interest rates are lower, homebuyers are ready to borrow more and pay less interest over the life of the loan. The current market price for homes and interest rates are influenced by a lack of housing inventory as well as general economic instability.
Everything around the rates
Rising inflation and the Federal Reserve’s monetary policy are putting pressure on mortgage rates. As inflation rises, the Fed responds by applying more aggressive monetary policy, which invariably leads to higher mortgage rates.
Experts predict that by the end of 2022, the rate on 30-year fixed mortgages will range from 4.8% to 5.5%.
Mortgage rates have risen since early 2022, reflecting investor sentiment that the economy is heating up and that the Federal Reserve is taking steps to cool it down and curb inflation.
US Treasury rates, which are typically followed by mortgage rates, have gone through two rough patches this year: in late February, when Russia invaded Ukraine, and in mid-May when investors became concerned about weak consumer spending. During these periods, bond yields fell, followed by mortgage rates.
Most mortgage market experts believe that rates will fluctuate over the next few months, but next year rates will likely settle at about the same level as they are now (with a 30-year fixed-rate mortgage just above 5%) or so.
Push for technological innovations
When COVID pushed the real estate sector to become digital, it fueled a similar movement in mortgage lending. Nevertheless, there are procedures in the mortgage business being decades old, relying mainly on the motto that it’s “exactly the way it was always done.” But in the end, it all comes down to customer experience. The fact is that advanced tech platforms should improve that experience and ultimate result.
With both the variety of proptech and fintech apps available, homebuyers can apply and qualify for a mortgage while being in the house they want to buy.
Mortgage companies, in turn, should keep up with the trends by using technology and improving efficiency. Moreover, the days of simply holding traditional city open houses in real estate are over. Like everyone thought from the start that the virtual house touring technology would be a temporary event – now everyone is sure that it’s here to stay. Potential homebuyers started to expect virtual inspection and realistic 3D representations.
On the mortgage side, recruitment has also gone virtual. And it was and will continue to be a significant change for the sector. Most of the mortgage industry is built on relationships, the vast majority of which are established and maintained in person. But, for most of 2020, nearly everything went online, posing new challenges for recruiting.
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The housing market will remain solid for the rest of the year as the economy continues to recover in the post-COVID-19 era. In addition, the real estate and mortgage sectors are continuously developing. It would be good to remember that “in the middle of the big crisis lies even bigger opportunity”, including the numerous real estate and mortgage industries opportunities as well.
According to the forecasts, the housing market will change. Mortgage rates, home prices, and housing costs will slowly rise. As more homeowners list their homes for sale, these homes may remain on the market for long periods of time. However, buyers will need to act quickly because the demand still exceeds supply.