For now, the refinance market continues to survive even as the economy continues to struggle and interest rates remain low. But, is that scheduled to change in 2015 and beyond? According to Lynn Fisher, VP of Research and Economics at MBA, it just might be on the horizon (Optimism).
The other day we talked a little about the dynamics of “affordable” housing. It has many moving parts and what one might consider to be affordable, may be way out of sight for someone else. It all depends on what you want, what you can afford and what’s for sale. Part of this equation has also been the refinancing of loans by current owners, which affects how many homes are on the market.
The Fed announced earlier this week that they were in no hurry to start increasing rates, but that they might begin to do so as early as June of this year. With that in mind, projections are that rates could rise all the way up to the mid 4’s by year end. Wow, how will we survive with a 30 year fixed rate at 4.5%? For the economy and the housing market to fully recover, rates have to increase at some point.
Interestingly, MBA reports that the homeownership rate is presently about 64.5%, which is the lowest level in 20 years. However, they also believe that the normal homeownership rate should be between 64% and 65%.
I’m no math wizard, but, I do believe that 64.5% is right in the middle of 64 and 65%. It would seem then that we are presently at a normal homeownership rate. If that’s the case, why is there all the hoopla about buyers being blocked out the market and the need to create programs to provide financing to more buyers?
According to this MBA report, there may not be that many more buyers out there. Maybe, that’s why it appears the market is stagnant. Were we way above the normal home ownership rate for the past several years and we’re just now coming back down to earth? Hopefully, it will be a soft landing.
Lenders have been artificially buoyed by a robust refinance market which may be coming to an end, yet again. It’s time to explore other options for business, like the good old purchase market. New buyers will be needed to replace those leaving the market so we can keep the homeownership rate at the current level.
Remember, some things have changed while we were chasing all those refi’s. The new buyer is much savvier and now uses technology to shop, apply and close their loans. It’s no longer the old way of originating business through Realtor or Builder contact.
Some of that still exists, but the buyer of tomorrow is of a new generation; a digital generation, and you need to be prepared, and able, to service that customer.
The other issue is that with the heightened refinance business also came a deluge of new mortgage lenders. With refinances ending and a homeownership rate at near normal levels, the book of available new business may not support the current cast of players. Those who are prepared to conduct business in the digital age to manufacture a quality, compliant loan will be the ones that succeed.
If you are, let me know.