Shifting demand for mortgages will dictate winners and losers in key areas of the industry
Two years into a housing drought and the mortgage industry is thirsty. Limited inventory has put upward pressure on home prices and stifled home sales activity, keeping would-be homeowners on the sidelines and forcing sellers to stay put out of fear of not being able to afford another place to live.
Homeownership tenure has nearly doubled what it was in the early 2000s, further withholding existing home inventory from the market, according to Attom Data Solutions. Homebuilders, meanwhile, face ongoing challenges with labor, land, laws and lumber — aka the “four Ls” — and are struggling to increase production of new, and in particular, entry-level, homes.
As a result, property values have surpassed housing bubble peaks and continue rising as demand for a limited number of homes has not backed down. All the while, average mortgage rates are on the rise, slowly creeping toward 5%, resulting in a mortgage market more reliant on purchase transactions than refinance activity.
“We’re in a new normal and here’s why: We have systematically, over the last two or three decades, abandoned certain affordable segments of the market,” said Freddie Mac Chief Economist Sam Khater.
The problem, Khater said, is the depletion of both new and existing starter-home inventory and neglect of the manufactured housing market, which boomed and busted between 1993 and 1998 and never quite recovered.
The implications of these changes in loan demand go far beyond the bottom line for mortgage lenders and servicers and will influence the direction of several key components of the industry. In some cases, companies will seek to invest more heavily in technology to develop more efficient processes or improve the borrower experience. Institutions may also beef up or cut back on their headcounts in kind.
And given the outsize role Fannie Mae and Freddie Mac play in the industry, shifts in loan demand will no doubt reverberate with policymakers grappling with the future of the government-sponsored enterprises.
What follows is an examination of how changes in the demand for loans — both purchase and refi — create distinct outcomes for technology investment and innovation, industry employment and GSE reform.