These are interesting times for mortgage lenders. While there are large-scale economic and socioeconomic reasons for optimism going forward, there are also some complexities and cautionary notes that need to be taken seriously. Understanding these key trends—and appreciating the significant issues likely to impact the industry in 2019 and beyond—is important for lenders, mortgage banking professionals and real estate professionals across the country.
Equilibrium on the horizon?
I expect to see the current imbalance between the number of homes available for sale and the number of buyers in the market to begin to come into greater equilibrium in 2019. That gradual balancing act is unlikely to depress housing prices, but it will slow the rate of increase somewhat. The slowing of home appreciation (a product of simple supply and demand dynamics) could actually be a positive development. Housing appreciation has been outstripping wage increases for some time now, and as these come into equilibrium, the result will likely be a healthier and more accessible home-buying marketplace.
Experienced lenders are well aware of the importance of staying in touch with the preferences and priorities of different demographic groups and generations. Two of the most influential demographics, the baby boomers and the millennials, are likely to play an especially important role in shaping the contours of the housing market throughout 2019 and beyond. More boomers will likely be staying put and holding off on downsizing, as we see a slightly weaker market for larger homes and, consequently, a financial equation that doesn’t look quite as favorable with regard to downsizing. While much has been made of millennial preferences for urban environments, a recent Ernst & Young survey of 1,200 adults aged 20-36 actually reveals that greater numbers of millennials are purchasing homes in the suburbs than in cities. According to the study, 41 percent of millennial homeowners in 2018 are choosing suburban locations over cities, small towns or rural areas—an increase from 36 percent in 2016. Today, 38 percent of millennials live in the suburbs versus 37 percent in urban settings. What’s clear, is that the iconic American dream of homeownership remains durable. As older Millennials begin to raise families and look for more space, they will become an increasingly influential home-buying demographic.
Peaking your interest
Regardless of demographics, low interest rates make home ownership accessible. The sticking point for many prospective homeowners is the ability (or lack thereof) to make a large down payment. Lenders will continue to offer more loan products to credit worthy borrowers that require reduced or minimal down payments, and financing options will continue to be available with less than the traditional 20 percent down payment.
Another important piece of the puzzle is the impact of (what are expected to be) rising interest rates in the months and years ahead. While rates currently remain at historically low levels, higher rates inevitably impact affordability. That said, given the low rates and current state of the marketplace, it seems unlikely that marginally higher interest rates would have anything more than a fairly modest-to-minimal impact on home sales.
The continued introduction of innovative technology in the months and years ahead will be an important storyline. Most of that new tech will be designed to facilitate the process on behalf of consumers. That means removing some of the friction from the loan process and ultimately compressing the amount of time it takes to get mortgage applications approved. New platforms will allow lenders to verify income at the time of application (with consumer permission). This should alleviate some of the paper trail and the documentation burden, allowing electronic access essentially at the time of application. Consumer trust will be a big part of this. It’s incumbent upon lenders—and the tech providers they rely on—to make consumer comfort and confidence with new tech a priority. It’s also important to remember that tech is just a tool. The role of mortgage lenders as counselors, educators and professional service providers will remain essential. Homebuyers—especially first-time homebuyers—have questions, and professionals with the knowledge, skills and experience to answer those questions will become arguably even more important as rules, regulation, tools and tech continues to evolve.
Wild card factors
There continue to be rumblings that Amazon is considering putting a toe in the water and getting into the mortgage business. Whether that would be as a facilitator, using their platform and unmatched market reach to connect consumers with mortgage professionals, or as a full-fledged provider offering something like “Amazon Mortgages,” is unclear. One thing that is clear, however, is that Amazon will have an impact one way or another. Even if the rumored market entry never materializes, younger homebuyers who grew up with Amazon and are used to the ease and speed with which customized service is delivered will continue to extend those expectations throughout other spheres—including mortgage lending. Amazon has helped set a standard for speedy and efficient service that real estate providers in general, and mortgage lenders specifically, will need to be able to meet if they want to be competitive going forward.
The big picture
For all the ebbs and flows and outside factors, home sales increased from 2017 to 2018 (while the overall mortgage market is slightly down in 2018, that’s largely because of fewer instances of refinancing, not because of a decline in home sales). The consensus among organizations like the Mortgage Bankers Association of America is that they expect that trend to continue in 2019. While you can never discount the possibility of a “black swan” event that disrupts national or global markets, the future continues to look bright, with innovation and increasingly efficient service models allowing forward-thinking lenders to continue to evolve and thrive.