Deeper Thoughts
Relax, This Is Not Our First Down Cycle

I had a great conversation with a family member recently. We were discussing the doom-and-gloom atmosphere the mortgage industry has been experiencing over the past few months. If you take the doomsayers at their word, it won’t be long before we all shut our doors and people stop buying homes or renting. After all, the interest rates are above 5 percent!

Now, this family member has been around longer than I have. He remembers the days of percentage rates in the teens. And yet, somehow, the best prepared businesses still made money back then. Home values weren’t even at record highs! And the sky did not fall after all.

The mortgage industry will rebound on this exact date.

Of course, this family member had the exact date of our collective recovery down to an exact prediction. This time around, the “counter-cycle” will end in 2024. So book it!

Or not. But the point is that housing, and home financing, is a pretty resilient industry. We’re not selling fax machines or saddles or fountain pens. And although it can take us a little longer than some other industries, we do evolve. And the down cycle always ends. There’s always someone to predict that exact date, too.

Not our first down cycle.

Remember the Fall of 2018? After an encouraging refinance spike, which followed a multi-year, foreclosure/REO market, we were faced for the first time in years with a…gasp…purchase market. You’d have thought another meltdown was coming. And if you do remember that brief panic, you’ll also recall that we were “saved” (I’d contend that a purchase cycle is an opportunity, not a setback).

Let’s face it. 2020, at least from the mortgage industry’s perspective, was a unique, if not historic, convergence of a number of unusual economic and social trends. They came together to induce the Fed to virtually give away money, which in turn fueled microscopic interest rates at a time when people were seeking to tap the equity in their homes or even move—be it their first houses or houses away from the city. The result was nothing less than record volume. That trend wasn’t going to last forever. If anything, it lasted far longer than anyone foresaw. 

Some signs that conditions are hitting a peak

There are already some suggestions that the interest rates will be plateauing soon. While rates have gone up faster than expected, home values in most markets have not plummeted. Far from it. We may or may not see a recession, but we forget that not every recession is the Great Recession. They’re also a natural part of the cycle. They’re obviously not favorable for everyone, and few people look forward to them, but they do occur occasionally. Many, if not most, make it through ok.

Yet another call to end the mass layoff syndrome with better automation

I’m not unsympathetic for those losing their jobs as the industry endures mass layoffs. Far from it. If anything, I’ve long advocated finding better strategies to manage market conditions than simply mass hiring followed by mass layoffs.  And I believe we’re starting to see more and more mortgage-related businesses doing just that—automating the entire cycle and using tech to supplement existing labor forces as well as empower firms to use their workers for more challenging and complex tasks. I’ll be the first to call for a better use of employees, not to mention improved benefits and office culture. 

However, from a macro-perspective, we really seem to be overreacting to the current conditions. Yes, we’ve seen better. But believe it or not, we’ve also seen worse. So whether it’s in 2024 or 2026…or even 4Q 2022…we will see better days again. We’re looking at a purchase market that most agree will top $2 trillion this year, so there is opportunity. We just have to pivot and prepare to compete.


We at LodeStar are grateful to all of our clients, friends and colleagues who take the time to view Deeper Thoughts. Please consider having a look as well at some of our other great content, including our podcast, “LodeStar’s Lending Leaders,” and our new original webcomic about the mortgage industry, “A Tale of Two Mortgages.”

As always, your feedback is welcomed and appreciated!