For this month’s client communication email, we wanted to bring you an industry update straight from our very own CEO & Co-founder, Tim Nguyen, as well as from respected author and mortgage expert, Jim Deitch. From rate forecasts to market dynamics, their perspectives comprehensively examine the factors influencing the industry today.
Tim Nguyen, CEO & Co-founder of BeSmartee
Predicting mortgage rates is like predicting the weather. Sometimes you can get it directionally correct, but rarely are you spot on +/- 10 bps. As of today, the MBA has a 30-year fixed at 7.03% and their April finance forecast has it ending at 6.4%. I think we’ll be lucky to see the Feds lower the federal funds rate even once this year. Assuming they do it once, I predict we’ll end the year in the 6.83% to 6.93% range. Rates aside, the real issue originators are facing is too many chasing too few, housing supply issues and a tough recruiting market.
Jim Deitch, CEO & Founder of Teraverde
Over the past four decades, the mortgage lending industry has experienced a series of refinance booms and busts, primarily driven by the dramatic decline in U.S. 10-year Treasury rates from the low double digits in 1981 to less than 1% in 2021. This long standing trend has now been disrupted, highlighting the significance of federal deficits.
As of now, the federal debt stands at $35 trillion, increasing at a compound rate of nearly 15% annually. The interest on this debt is approximately $1 trillion, surpassing the budget of the Department of Defense. The Mortgage Bankers Association (MBA) forecasts average interest rates of 6.4% in 2024 and 5.9% in 2025. Loan production is expected to be $1.8 trillion in 2024 and $2.1 trillion in 2025, with about 80% of these loans for purchases and 20% for refinancing.
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While these forecasts might seem daunting, there are two significant silver linings that the industry should consider. First, homeowner equity has reached $32 trillion as of April 2024, up from $20 trillion in 2020 and $8 trillion in 2013. Homeownership remains the largest contributor to the average American’s wealth. As Dave Stevens aptly put it, “Buy the home, rent the mortgage.”
Most of this $32 trillion of equity is held by homeowners over 50, presenting an opportunity for first-time homebuyers to seek assistance from parents and grandparents for affordability and down payments. Innovative lenders should capitalize on this inter-generational wealth transfer.
The second silver lining is the pressing need to modernize and rehabilitate America’s aging housing stock. According to the National Association of Home Builders (NAHB), over 60% of single-family homes were built before 1980, with only 11% constructed since 2010. This presents a substantial opportunity for modernization and rehab initiatives. Additionally, many states and cities are starting to recognize that restrictive zoning laws have exacerbated the crisis of home availability and affordability. Efforts to lobby for zoning modernization could significantly streamline land development and redevelopment processes. California’s progress with Auxiliary Dwelling Unit permitting and Denver’s fast-tracking of single and multi-family construction and redevelopment are promising examples.
In conclusion, innovative lenders who seek opportunities beyond the conventional 30-year fixed-rate mortgage will find ample prospects in these evolving market conditions. By focusing on leveraging homeowner equity and addressing the urgent need for housing modernization, the industry can navigate these economic shifts successfully.