Housing market overview
Like the broader economy, the housing market’s second quarter was characterized by an unprecedented spike in unemployment, record-low mortgage rates and an oscillating stock market. This widespread disruption is now beginning to stabilize, and the housing and mortgage industries are showing strength in the third quarter. While forecasts of economic activity are much more uncertain than usual these days, things are looking good for mortgage loan seekers and mortgage professionals alike.
The mortgage industry in the third quarter
Mortgage rates dropped to record lows this quarter, leaving many owners scrambling to refinance their mortgage and secure a better rate. In fact, according to Mortgage News Daily, refinancing application volume increased more than 100% over levels recorded 12 months prior. If this pace continues, 2020 could be a banner year for the mortgage industry, with the potential for $2.609 trillion in volume (Housing Wire, 2020).
Economists and industry experts have also recently dispelled many serious concerns regarding a mortgage or real estate “bubble” and credibly predict 2020 to be a strong year for both industries, continuing into 2021 and beyond. In short, real estate in general and mortgage in particular have been largely spared the more negative economic effects of COVID-19. Per Housing Wire, home prices increased 4.9% in May and 21% in June (2020), and mortgage applications are up following 9 straight weeks of year-over-year increases (2020).
Notable trends
Historic low interest rates
Many feared for the housing market as the economy officially entered into a recession earlier this year. Luckily, the Federal Reserve (Fed) has kept the industry strong, taking a leadership role in driving economic activity. The federal funds rate was lowered in March, prompting record-low mortgage interest rates. The average mortgage rate fell to 2.98%, and 2.48% for 15-year loans, representing the lowest rates in 5 decades of data (Mortgage Professional America, 2020). These historic rates both incentivized refinancing and encouraged homeownership. Rates remain low and are starting to stabilize but, with so many fighting to purchase or refinance, the industry remains aggressive.
Emphasis on credit
Credit requirements have been tightened. If you’re planning to buy or refinance, keep an eye on your credit. If 720 designated a certain interest percentage before, you may need something like 780 now, for example. Try not to take on new credit, and confirm forbearance isn’t negatively impacting you.
Digital mortgage transactions
Online applications, zoom meetings, scanned documents and digital signatures have taken off and are likely here to stay! The sudden need to digitize has emphasized speed and efficiency throughout the entire homebuying process.
Lending volume remains strong
The recent fluctuation of the economy has negatively impacted retail and service sectors, but mortgage lending volume has remained strong across markets. Exceptions are applicants with lower FICO scores and those seeking to refinance or obtain financing for a property that is too expensive for a conventional conforming loan, otherwise known as a jumbo mortgage. Accessing a jumbo mortgage is still possible, and those with less-than-perfect credit are still securing home loans, but at reduced volume and often with tighter standards.
What’s to come?
Federal stimulus, including substantial unemployment benefits and mortgage forbearance, have played a large part in maintaining the housing market thus far. Nearly 8% of the industry is currently in forbearance (Inman, 2020), or able to skip payments for up to one year. As added unemployment benefits recently wound down, though, there’s a chance that percentage will go up.
Most experts predict interest rates will continue to fall in 2020 and, likely, into 2021. As recently as 60 days ago, rates under 3% were discussed only as a possibility. Now that some rates have dropped below that threshold – a first in 50 years – it’s difficult to predict just how low they may fall.
Low inventory, coupled with a surge in homeseekers, has also led to increased prices and diminished affordability. This demand has instilled high confidence on the part of homebuilders, who could add to available inventory, increase home buying activity and prompt applications for purchase-money mortgages.
To summarize
Whether through a surge of refinance applications or with record-low mortgage rates, 2020’s third quarter has already illustrated precisely why the mortgage industry must expect the unexpected! Although concrete predictions are almost impossible in our current climate, the industry outlook remains strong. Amid broader economic uncertainty, housing and mortgage are bright spots for the country’s economic outlook.
Ward Morrison – President, Motto Franchising, LLC
Ward Morrison is the president of Motto Franchising, LLC. Under Ward’s leadership, Motto Mortgage has received numerous industry accolades in its short three-year history, including recently ranking on the 2020 Entrepreneur magazine Franchise 500® and earning the #1 spot in the Miscellaneous Financial Services category. Prior to leading Motto Franchising, LLC, Ward spent more than 13 years in various management and operational roles within RE/MAX Holdings, Inc. the parent company of the world’s largest real estate broker franchisor, RE/MAX, LLC. Ward continues to pave his way as an innovative leader in the mortgage industry and was named 2018 Housing Wire Vanguard award recipient and a 2020 RISMedia Real Estate Newsmaker.
Bob Butterfield – Exec Director, Franchise Sales
Bob Butterfield manages franchise sales and growth for Motto Franchising, LLC., a division of RE/MAX Holdings, LLC. Bob has been with Motto since 2017 and brings over 10 years of experience to his role. Bob leads a team of Franchise Sales Consultants across the US, successfully adding more than 150 new franchises in more than 35 states since Motto’s launch. Bob joined RE/MAX in 2011 and prior to his current position was Exec Director, Franchise Sales for RE/MAX, LLC following a successful career in RE/MAX franchise sales.
Published on August 21, 2020
