Q1 didn’t quite play out how many of us had hoped. The lower interest rates the industry anticipated haven’t come to fruition yet, but many industry experts still think the market will make some moves this year. If you’re a real estate professional, you’re probably wondering what lies ahead for housing this year.
From an anticipated increase in refinancing to a warming up of the housing market and a significant emphasis on sustainability, 2024 is shaping up to be a year of change. But what exactly lies behind these forecasts? Let’s delve into the intricacies of each trend to understand their implications for your business.
Let’s start with everyone’s favorite…
2024 Mortgage Market Predictions for Real Estate Professionals
Some industry participants are optimistic that there are signs pointing to:
· An increase in refinancing
· A housing market warm-up
· A bigger moment for the sustainability trend
Here’s why…
The Mortgage Rate Mambo
After a year where rates seemed to only understand the concept of “up,” the end of the year brought some welcome relief as inflation pressures eased and the Fed decided not to raise rates three times in a row.
Yeah, inflation may still be higher than the Fed’s goal of 2%, but in the last couple of months of 2023 and early 2024, mortgage rates have dropped faster than in any 8 weeks since 1982.
And Fannie Mae predicts that, after a high of 7.79%, the 30-year fixed rate mortgage will land at a 2024 Q4 average of 6.5%.” (Forbes)
Refinance Resurgence
Homeowners who had to buy during painfully peak interest rates are no doubt watching closely and may be ready to leap into a refinance as soon as rates are low enough for it to be worthwhile.
“For those that closed a mortgage loan in the last two years, it will most likely make sense for them to refinance their rate at some point in 2024,” says Christy Bunce, president of mortgage lender New American Funding. “We are already seeing an uptick in refinances.” (CBS News)
People who opted for an Adjustable-Rate Mortgage (ARM) may also be eager to switch over to a fixed-rate mortgage before their rates have a chance to get really ugly. Why?
They could potentially stave off a seemingly endless parade of rate increase adjustments under the terms of their loan documents if they lock in a fixed rate now.
And a more predictable payment might mean fewer budgeting headaches.
Both of which might mean less overall financial stress.
Housing Market Heat-up (or at Least Warm-Up?)
If they have the option, many potential sellers are just not willing to give up a mortgage at say 5.75% for a new one at say 7.75%. So, they may just staying put. For now.
If rates go down, it may become more practical for sellers to consider a housing change-up. Whether they are down- or up-sizing, they would then have a better chance at a more appealing rate on a new mortgage loan.
Falling mortgage rates could also mean more potential buyers, so sellers who have watched their property values level off or even drop (ack!) might actually be able to sell closer to the price they hope for.
All of these sellers may be primed and ready to jump back into the market when the jumping gets good.
There may be some good news on the buyer’s side too.
Lower mortgage rates may mean housing is (sort of) more affordable again.
First-time buyers in particular have watched their dreams of home ownership implode thanks to skyrocketing home prices and ever-increasing mortgage rates.
For some, the mortgage market in 2024 may give them enough of a break to bring that American dream within reach once again.
More sellers may also mean more choices for buyers.
And more choices could even mean a bit of leverage when negotiating final contracts – something buyers haven’t had for a serious hot second.
“Lower mortgage rates would help spur home sales activity, which [is] expected to increase in 2024 compared to 2023. Declines in mortgage rates will drive more sellers to trade [in] their existing home[s] and help add much-needed inventory to the market, leading to more transactions.” (Selma Help, chief economist at Corologica)
While mortgage rate trends are a big part of what will drive the mortgage market in 2024, other factors will help shape what happens in the next 365 days.
Perhaps in rather unexpected ways.
Demographic Divergence
The landscape of homeownership is shifting.
The pandemic-fueled explosion of remote work options has practically erased the limitations on where folks can live and work.
As a result, one generation is well on its way to taking over the main demographics of the housing and mortgage markets. I’m looking at you, Millennials.
Currently, the largest demographic group in the US, outpacing even the Baby Boomers, they may be increasingly prioritizing homeownership as both a way to build wealth and have a backdrop to create family memories. Many of them may finally be reaching the end of student loan payments, so they may be more easily able to afford a mortgage loan.
They also may bring with them their greater diversity, higher education levels, growing marriage rates, and more stable income.
Yes, the quintessential nuclear family is still buying dream homes in suburbia.
But the Millennial generation also boasts increasing numbers of single women heading up households due to advances in more equitable pay.
Why do these things matter to you?
Massaging your marketing
Increased racial and head-of-household gender diversity may warrant a look at broadening your marketing messages.
Younger generations increasingly want to feel seen and heard by the companies they choose to do business with.
Lean into that.
The more you can tap into their unique hopes, diverse demographics, and broader definition of family, the more you will be the real estate professional of their choice.
They are also a digital generation.
If your primary method of marketing focuses on print, in-person networking, or more “traditional” channels, you might be missing your shot at this up-and-coming client pool.
Given that buying a home is often one of the largest purchases someone will make in their lifetime, it can be intimidating and scary, especially for those who have never done it before.
If you can take the fear out of the process for these folks with a mix of education, simplification, and tools, you may end up looking like a hero.
Let them know you are willing to help them through the process, be the person they trust to give them honest answers and make sure they don’t get blindsided by things like closing costs that they’ve never even heard of before.
Confronting unique challenges
Hopeful Millennial homebuyers may face a different set of challenges and barriers than previous generations.
“Despite millennials having more college and graduate degrees than older adults, only 16% of them could be considered financially literate, according to a 2018 study by the TIAA Institute, compared to 34% of adults assessed at the same age range in 2009. (Freddie Mac)
Millennials may also be buried under spiraling costs of living, increased debt, and fallout from the pandemic. Pulling together something like a down payment can feel like hoping to be an astronaut someday.
Many Millennials are convinced they need a 20% down payment to even enter the market.
That’s an intimidatingly large chunk of change to have on hand before you can even think about buying a home.
The truth is, the median down payment in 2019 was actually as low as 6% for first-time buyers.
Down payment assistance programs? Homeownership grants? Tax credits? Most Millennials don’t even know those are a thing.
Suggest your homebuyers work with a mortgage professional they trust to help them find out-of-the-box ways to potentially build a down payment.
Creative Creditworthiness
Traditionally, a solid credit score has been one of the golden tickets to landing a mortgage loan. But in 2024, alternative data is likely to increasingly take center stage.
With growing innovations in financial technology (or fintech for short), some lenders are now throwing utility payments, rental history, and social media posts into the mix when they determine whether or not to extend credit to a buyer.
Seriously? Social media?
Yup.
It’s called social media credit scoring and involves using social media data to help determine what kind of consumer you are and whether you’re likely to pay back, or default on, a loan.
“By checking social media activity, registered profiles, and even the reputation of specific social media networks, lenders can get a better idea of the kind of borrower you could be.” (Seon)
Having a profile on LinkedIn that talks about a job you didn’t list on your credit application or only having a presence on a “less desirable” (according to reputation) social media site may both be red flags for a lender.
On the other hand, a strong and positive social media presence could help convince a lender to approve your loan.
Alternative data is typically mixed in and cross-referenced with more conventional credit information to put together a broader, more well-rounded view of someone’s creditworthiness.
Freelancers and gig workers may also be getting a boost.
Lenders have figured out that the growing gig economy can have stability and consistent income, so they are weaving freelance work into their income verification strategies. It’s becoming increasingly common to also look to bank account deposits, business history, and… here it is again… social media.
The dominance of digitization
The digital revolution has leaked into just about every aspect of our lives, and mortgage market innovations are catching up.
Remember those Millennials? They were the first generation to grow up in the digital world and may prefer to get their various types of content online.
As they (and others raised in the digital age) become a bigger and bigger part of the mortgage market, both mortgage brokers and lenders are increasingly turning towards digital solutions.
Digital content may reach a much broader (and younger!) demographic, including whole generations of folks who prefer to do life online anyway.
It may streamline the mortgage application process, making it easier to apply for a loan wherever and whenever they need it.
And it may make it easier for mortgage professionals and lenders to process more loans in less time.
The underwriting process takes time. As do classifying loans, general data entry, and waiting for appraisals. Digital tools to streamline all of those things may buy you back some of that time.
The increasing use of digital signatures may mean fewer in-office appointments and automated processes may shorten the time to close, getting your excited buyer into their new home even faster.
Artificial intelligence (AI) has come to the mortgage market too.
AI-driven innovations are already helping mortgage businesses generate marketing copy, write personalized recommendation documents after a phone call, or spot early signs that someone is about to default on a loan.
These digital innovations may have helped open mortgage loans up to a broader range of people, and therefore a larger pool of potential clients.
All in all, 2024 is shaping up to be a very interesting year for the mortgage industry, as adaptability and innovation seem to be big players in what comes next.
From interest rate predictions to the brave new world of digital and AI fintech, we may still find ourselves clinging to the wild ride we’ve been on for the last several years.
But with the positive rate trends, potentially new demographics to explore, and some easing in the general housing market…
This year, at least, we might be smiling.
Published on March 5, 2024
