RIPPLE EF­FECTS

Shift­ing de­mand for mort­gages will dic­tate win­ners and losers in key ar­eas of the in­dus­try

National Mortgage News - - Front Page - By Elina Tarkazikis

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.

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