Rushing Toward the Spring Home Buying Season

Rushing towards the spring home buying season

Like millions of Americans across the country, I waited with anticipation in early February to find out how much more winter we could expect before we could enjoy the spring homebuying season. Nothing the groundhog could have told us — and in truth he told us nothing — could have prepared us for the frigid cold that visited us mid-month.

February cold exacerbated the housing market’s inventory woes, according to the realtor.com Monthly Housing Trends report released in early March. Homeowners who could have put their homes up for sale in February remained huddled by their fireplaces instead. The result, over 200,000 fewer homes were listed for sale in the first two months of 2021.

But cold and inventory aren’t the only forces impacting the real estate and mortgage businesses today. Mortgage interest rates near historic lows and remote work have driven scores of Americans to buy bigger homes in more affordable places, according to Redfin data. Experts at the company tell us this is resulting in bidding wars and buyers making offers on homes site unseen.

Naturally, those borrowers who are working with lenders who offer them digital access to an advanced mortgage automation platform enjoyed a streamlined process that allowed them to pre-qualify faster and enjoy an advantage in a competitive homebuying marketplace.

But that’s not a new thing. According to Redfin, 63% of 2020’s homebuyers made an offer on a property that they hadn’t seen in person. Wow. And people bought a lot of homes. According to data compiled by ATTOM for the fourth quarter of 2020, loan originations reached the highest level we’ve seen in nearly 14 years, increasing 5.5% from the previous quarter and 48% from the fourth quarter of 2019. Much of this was refinance business.

But how long can this go on? Some experts, most notably Reuters, found reason in February to conclude that the real estate market has peaked. Reuters based its analysis primarily on investors snubbing US mortgage providers who recently went public.

The analysis is interesting and Reuters points to a number of cases where investors are exhibiting a wait-and-see attitude. “The investor pushback reflects concerns about the industry outlook, as mortgage rates gradually creep up with the economic recovery, and home price inflation begins to weigh on purchases. The Mortgage Bankers Association is forecasting a 49% decline in the number of refinancings in 2021.”

It is true that MBA called for a steep decline in refis this year, but economists there also predicted a record purchase market that would make 2021 a very good year for mortgage lenders.

In any event, front line loan originators didn’t seem to have time to watch the stock market. They were too busy trying to serve a market full of home loan borrowers who apparently hadn’t been informed of the coming industry decline.

The most fortunate of these new home loan borrowers were working with Augmented Loan Officers, mortgage professionals backed by AI-powered workflows. These new technologies are already helping lenders close more loans, monitor and ensure regulatory and investor compliance and increase profits.

But eventually, the market will slow and lenders that don’t already have advanced technology in place that will allow them to do more with the people they have will struggle. The tools are out there now, but lenders need to invest, install and adopt to gain the benefits. With the right technologies, lenders won’t have to recruit when volumes spike, like they have been doing for the past 12 months or so, as the platform will handle the volume.

When the volume does begin to fall off, it will likely be for reasons that are already starting to come into focus. The first of these is housing affordability and the second, of course, is rising interest rates.

Affordability basically comes down to wage growth (of which there is currently none) and home prices, which are out of control. The S&P CoreLogic Case-Shiller Index data for December showed its first double-digit increase since January 2014, surging to 10.4%. The month-to-month index also increased 0.85%, making it the strongest November-to-December increase since the data series began

“A wave of eager buyers – many of whom are looking to enter the market for the first time – sought to capitalize on record-low mortgage rates and snap up the relatively few homes available for sale, leading homes to fly off the shelves and prices to continue to grow,” the company reported. 

According to a survey CoreLogic conducted last month, nearly 76% of U.S. non-homeowners aged 18 or older say that they have no plans to purchase a home within the next six months. When asked for the biggest deterrent, 43% of respondents cited affordability constraints.

Existing homeowners, on the other hand, are another matter. With their equity on the rise, they are having no trouble refinancing their existing mortgages or buying a new home. We’ve already addressed how easy it is to sell their existing homes, for listing price or above. It’s hard to focus on future market troubles when business is this good.

Not that there haven’t already been challenges lenders have been working through this year. The new URLA just (finally) went into industry-wide production, forcing lenders to rethink loan origination processes they’ve been using for decades. Machine learning will allow their technologies to adapt as their processes change and the record that lands in the lender’s knowledge base will guide future loan officers and processors.

And now, we find ourselves just weeks from the beginning of spring (I’m sure it’s purely coincidental that it falls on the date the groundhog predicted). We probably won’t have to wait as long for the home buying frenzy to begin as children aren’t in the classroom yet and families need not wait to shop for their new homes.

All of this tells me that this spring is going to be very exciting for mortgage loan originators and for consumers shopping for new homes. But then, you don’t have to be a groundhog to nail that prediction.

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