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2018 and beyond will be a home purchase market. What might happen to home sales as rates go higher? Refinances are drying up. But, will home sales and related financing opportunities go the same route when rates jump?
“Not necessarily,” says a Redfin, a national Real Estate firm. According to their recent survey, if rates rise above 5%, only about 6% of today’s potential homebuyers would drop out of the market.
According to the survey:
- 27% might slow their search
- 25% would have no change
- 21% would speed up their search
- 21% might look to buy something smaller/cheaper
- 6% would drop out
As the survey indicates, some consumers may actually speed up their home purchase in attempts to avoid the potential of even higher rates. Much depends on the rates, how quickly they rise, and the effects of home prices.
Rising rates, coupled with some decrease in potential buyers, may reduce or at least stabilize home prices. This could result in more homes becoming more affordable to more buyers, especially first-time buyers.
More affordable homes mean more potential buyers which translate into more financing opportunities. On the other hand, more potential buyers could also drive up home prices, again. It’s that old supply versus demand thing.
In 2018, it seems we’ll see a good purchase market with rising mortgage rates and higher home prices. However, we’ll also have a better economy with more wage growth and lower taxes. This may put more people in a position to buy a home.
Lenders need to position themselves for what is to come. The big refi market is gone. Although some limited opportunities may still exist, it ain’t gonna be what we had over the past several years.
Although we’ll see a strong purchase market, overall volume will not be what it was in recent prior years. Business will be down, and lenders need to right size accordingly. You will need to adjust both people and related expenses.
- Look for more ways to reduce your fixed expenses.
- Create variable expenses that are tied to variable loan volumes and income.
- Explore areas for outsourcing like post-closing loan reviews, deliveries and your pre and post-closing QC audits.
Why carry the fixed overhead in staff, office space, and equipment, associated with these functions when you can pay per loan, per month, as needed, to accomplish these tasks?
Rates will go up. Be prepared to deal with the results.
