Get Started
7 min read

10 trends to watch in the mortgage industry

Featured Image

While the mortgage industry is notoriously impossible to predict, you can still follow the trends to get a good idea of where it’s at and where it’s headed. The past year or so has brought tons of rapid change and volatility to the market. So what can we expect to see as we finally move past the COVID-19 pandemic and get used to the new normal? Stay tuned to learn about the top 10 trends to watch in the mortgage industry brought to you by the lending experts at Vaster Capital

Interest rates will begin to rise

While interest rates will remain comparatively low, they will begin to rise to a certain extent. In fact, we have already started to see this. For instance, at the time of publishing, the average interest rate for a 30-year fixed mortgage was 3.028%. This is in contrast to an average rate of 2.735% on February 9, 2021 -- just a few months ago. While this may seem like an insignificant increase, just a few tenths of a percentage point can save you thousands over the life of a 30-year mortgage. 

Even though interest rates will see some sort of an increase, there are things that you can do to ensure that you receive a favorable rate. For starters, make sure that you have excellent credit that will earn you the best rates. Second, shop around for rates with multiple lenders and lock in the best rate offered. Finally, try to negotiate interest rate discount points within the terms of your mortgage to lower your interest rate even more. 

Refinance volumes will begin to fall

One side effect of rising interest rates will be that refinance volumes will begin to fall. Refinance volumes in 2020 hit record highs due to record low interest rates. Naturally, many people wanted to refinance to achieve these lower rates and save a ton of money throughout the lifetime of their loan. 

Based on mortgage predictions from Fannie Mae, refinance originations are expected to come in around $2.2 trillion this year compared to $2.8 trillion in 2020. This amounts to a more than 10% decrease in total refinance originations. Freddie Mac predicts the numbers to fall even more dramatically by around 25% to $1.8 trillion. 

So while you may be able to save money by refinancing your home, this isn’t necessarily guaranteed. Plus, you also need to consider closing costs that are required when refinancing. If you’re unsure, it’s best to do more research or speak to a lender about your unique financial situation. 

Home prices will continue to increase

The year 2020 also saw a record increase in home prices. According to Redfin, the median home sale price increased 15% year over year in 2020 to $320,625 -- the highest on record. Zillow predicts that for the year 2021, home values will end up being 10.5% higher than current levels. So clearly, these high price tags aren’t going anywhere. While it’s natural that hearing about these large increases may cause some anxiety, it’s not time to freak out. 

This is because since interest rates are remaining low, price increases aren’t the end of the world since people will be saving money on interest. In turn, they will be able to afford to buy more houses. So before you begin to panic about price increases, it’s important to consider the state of the entire market. 

Supply still won’t be able to meet demand

The main reason for the price increases that we saw in 2020 and will continue to see in 2021 results from extremely high demand for homes. Because of the pandemic, people were spending a lot of time stuck at home and naturally wanted to upgrade from tiny apartments into single-family homes with more space -- indoors and outdoors. At the same time, sellers were hesitant to sell their homes due to the general uncertainty in the market and the world more generally. 

This contributed to a huge gap between supply and demand that caused prices to skyrocket. After all, if you have multiple people fighting over one house, the price is bound to go up as a result of a bidding war. So even though more people will begin to put their homes on the market this year, it cannot keep up with the high demand primarily caused by Millennials trying to enter the housing market for the first time. 

Competition will remain fierce for single-family homes

Since supply won’t be able to meet demand, competition will remain fierce for single-family homes. This type of home was in high demand at the height of the pandemic due to the freedom and space it provides its occupants -- a huge contrast to the restrictions and space issues seen in other types of housing like condos and apartments. 

As a result of this competition, many buyers are taking drastic measures like waiving contingencies to win their dream property. For example, many buyers are waiving home inspections that are generally performed to ensure that the home is in good structural and functional condition. Many buyers are also waiving the appraisal process -- signifying that they are willing to personally pay the difference should the appraisal price come in lower than the offered amount. These are two very aggressive and risky moves that can give you an edge over other offers -- but at the cost of security -- financial and otherwise. 

New-build homes will start to rebound

The COVID-19 pandemic caused a litany of supply-chain issues that affected the building of new homes. For instance, the supply of lumber was and is still a pressing issue in this industry. However, as operations around the world begin to normalize as vaccines are distributed, home builders will be able catch up with delays and start to meet the high demand for these types of homes. 

People will keep moving to the suburbs

In the height of the pandemic, many people predicted a “mass exodus” of people from cities to suburbs as cities became “hot zones” of outbreaks and were generally considered unsafe, or at the very least, unpleasant to quarantine in. 

As we begin to transition to post-pandemic life, many employers are now faced with the decision over whether to bring workers back to offices or allow them to work from home permanently. Many large employers have already decided to go completely remote, essentially eliminating the need for many employees to live in big cities. At the same time, this will not occur with every employer and a lot of employees will still need to remain in cities for work. 

Foreclosures will start to hit the market in the form of short sales

Foreclosure and eviction moratoriums have had a huge impact on the market as banks and landlords are unable to evict or foreclose upon individuals that have been unable to pay. However, with the foreclosure moratorium set to expire at the end of June, many of these properties will begin to hit the market as short sales. These short sales can provide the market with a much-needed influx of inventory that is primed for cash buyers or investors. 

Technology reigns supreme

Another COVID-related trend that is definitely sticking around is that of technology. Distance from the pandemic necessitated technology in almost every aspect of life from school, to work, to socialization -- and even the mortgage industry! While it will be nice not having to do everything online anymore, some things will remain online for convenience sake. 

For instance, applying for a mortgage can now be done completely online -- making it quick and easy for the applicant. Talking with a lender is easier than ever thanks to electronic options like live chat, video calls, or just basic email. Furthermore, technology can also make the pre-approval and underwriting processes quicker and easier for all those involved. Finally, there have even been “eClosings” wherein the closing process is completed electronically rather than in-person. At the end of the day, the new technology trends in the mortgage industry continue to benefit both borrowers and lenders. 

The market will not crash

Perhaps the biggest question asked about the mortgage industry relates to it crashing. Many people automatically associate skyrocketing costs with market crashes. After all, what goes up must come down right? Not necessarily. 

What we are seeing in the industry now is nothing like what we saw prior to the 2007 mortgage crisis. The 2007 financial crisis was largely caused by mortgage loans being given to unqualified individuals. This is not happening now. As a result, it’s not realistic to expect the market to crash in a way similar to 2007. That being said, this rate growth cannot continue but instead of crashing, the market will instead undergo either minor corrections or simply level out around the prices and rates that we’re currently seeing. 

Final thoughts on the mortgage industry in 2021

At the end of the day, it’s nearly impossible to predict or time the market. So if you’re sitting around waiting for a crash to happen or the “bubble” to pop -- you may be waiting for a long time! If you’re ready to buy now, then you should start the process now by speaking with a reputable lender like Vaster Capital

 

Sources:

  1. Current Interest Rates | NerdWallet.com
  2. Here's What to Expect From the Housing Market This Summer | USNews.com
  3. Find Out What Really Happens When You Waive Contingencies to Score a Home | Realtor.com