BLOG VIEW: The housing pendulum has had a major workout recently. In 2020 and 2021, housing demand exploded due to the lowest mortgage rates in history, creating the strongest seller market ever experienced in modern housing history. As a result, bidding wars amongst buyers and homes selling far above list price were both the norm.
By February 2022, however, the pendulum began to swing back toward the center as interest rates unexpectedly jumped, causing many would-be purchasers to take a moment to pause and wait to see how much the market would change. Unfortunately, the pendulum didn’t stop – by the time we hit the fourth quarter of 2022, it had swung 180 degrees, and home purchase activity came to a near screeching halt, hitting the lowest point in almost three decades.
Now here we are, only a few months later, and already the pendulum is swinging back yet again. While rates have come down slightly, home purchasing has jumped dramatically. Buyers are now coming out of the woodwork and home purchase demand is surging. The obvious question every originator should be asking themselves is, “what am I doing about it?”
Why Excitement is Building
To be sure, the housing market is nowhere near where it was two years ago. Rates are still relatively elevated compared to where they were. Many homebuyers are still challenged with affordability related to home prices and interest rates. Plus, the series of rate hikes by the Federal Reserve that began last year has continued into 2023. The most recent economic data continues to create questions about how much more work the Fed has to do to curb inflation.
Since this past fall, however, the average 30-year fixed interest rate has dropped from a high of just over 7% to under 6%, and according to the Mortgage Bankers Association, mortgage applications increased four out of the first five weeks of the year. By early February, the New York Times noted this trend by publishing an article, “Falling Mortgage Rates Bring Some Home Buyers Back to Market,” which spoke about how buyers are “edging back” after sitting on the sidelines last year.
In the meantime, housing inventory in many markets is once again quickly being swallowed up because the pace of purchases is far greater than that of homes being listed for sale. As mortgage rates continue to drop—which many market observers believe will happen—the demand for housing will likely continue to increase.
While noting there are general uncertainties with the U.S. economy, several top industry economists recently made it clear that buyer demand will rise. Mike Fratantoni, chief economist for the Mortgage Bankers Association, recently commented that mortgage rates are now at the lowest level since September. “As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers,” he said.
These sentiments were echoed by the National Association of Relators’ chief economist, Lawrence Yun, who expects buyers will return to the market in the following months, as well as Sam Khater, Freddie Mac’s chief economist, who believes a combination of even lower rates, “a strong job market and a large demographic tailwind of Millennial renters will provide support to the purchase market.”
The Time is Always Now
Is the pendulum once again swinging over to an extreme seller’s market? We don’t know the answer to this question, but all indications are that buyers who continue to wait to take action will likely lose the home purchase advantages that exist right now. In fact, while many sellers are content to stay where they are, others are offering incentives for buyers to purchase in the form of aiding in lowering a purchaser’s mortgage rate or even paying their closing costs.
However, as the media begins to report more and more about the current shift in the market, and more buyers continue to put their homebuying plans into action, chances are sellers will quickly stop offering incentives and we will again see home prices rise. After all, the universal law of supply and demand remains undefeated—the higher demand, the higher prices will rise. When that shift in seller sentiment begins to take hold, the window for purchasers seeking to take advantage of low rates and existing home inventory will close pretty fast.
All of this means that if a lender has clients who are considering purchasing a home, 2023 is probably their best opportunity. Which, in turn, means the time for originators to act is now. In fact, the time to act is always now.
From a 10,000-foot view, the current market remains challenging for all mortgage originators. Refinancing activity and purchase activity are both far below the levels we saw one year ago. But the bottom line is that no one can control the market – we can only control our own actions.
One can point to any time in the mortgage industry’s history, even during the Great Recession, and find originators who are having success in spite of the high rates and low inventory. There are many doing very well right now, too. They may not be soaring off refi volumes like they were two years ago, but they are still doing as many as 15 transactions monthly, even those without the benefit of a large team behind them. Why? Because they never let their foot off the gas pedal when it comes to building relationships with both potential buyers and real estate agents.
The reality is that the market pendulum rarely stops swinging for long. The market is either expanding or contracting. And when a window of opportunity like this opens, there’s no guarantee how long it will stay open.
It’s also true that there is still not enough business for every originator. But the ones who will thrive are those who keep their heads down, continue to learn new skills, understand their value proposition, and most of all, continue to prospect and work on building new relationships. Regardless of what type of homebuying market emerges this spring, the originators who do these things will invariably come out on top—as they always do.
Ron Vaimberg is an international success strategist, trainer, and coach of sales professionals. A former top producing loan originator and real estate agent, he has coached loan officers and brokers who have ranked in the top 1% in loan production and earned over $1 million annually.
