I was recently asked to weigh in with our friends at National Mortgage News (registration required) when the average 30-year fixed rate crossed the 6% threshold. I still believe, as I always have, that people will always need housing, and there will always be some level of demand for mortgages.
This is not to make light of the correction going on in our market after two or three amazing years. The layoffs we see are very real, although I also believe they wouldn’t have to be so severe if we better deployed technology. Volume is definitely down. And other economic factors such as inflation and the threat of recession could also have a negative impact upon home buying.
And yet, there are positive indicators that, while not suggesting another 2021 in terms of volume again, there will be substantial mortgage business available. For starters, the rate of depreciation—in fact, the slowing rate of appreciation—in home value is far less dramatic than the rapid increase in mortgage rates. In other words, while home values aren’t skyrocketing like they were two years ago, they’re either plateauing or simply growing at a slower rate. Home values remain high.
This suggests increased volume in other mortgage categories, such as HELOCs. It’s getting less competitive on the home buying front, too. While that might also seem to undercut my proposition, consider this. We’re seeing some research suggesting that, while overall demand may drop in 2023 because of interest rates and housing prices, there is quite a bit of pent up demand, led in large part by people who tried, but failed, to purchase in 2021 or 2022 because of the unbelievably competitive market. And, there’s still the consensus forecast from the GSEs and other major economists suggesting we’ll see over $2 trillion in mortgage origination volume for 2023, mostly purchase.
My point is that there will be business for those prepared to compete. Times are not at their best, but the sky is not falling.
Perhaps the best way to put our current market into perspective comes from a simple graph. This is the annual average interest rate for 30-year fixed loans dating back to 1971, as recorded by Freddie Mac. When you hear industry veterans talking about 18% interest rates in the mid-80s, they’re not exaggerating. In fact, the historical average over the past 50 years is almost 8%. We’re so used to rates hovering between 3 and 5 percent, with the help of some aggressive Fed policies, and the relative ease of processing refinance mortgages, that some are dreading a relatively robust purchase market at historically average interest rates! We’re still below average, even as the collective panic wells.
It’s all a matter of perspective. And while the doom-and-gloom crowd tends to be the loudest, that’s because the visionaries, the leaders and the hardest-workers know that being competitive takes planning and execution. They also know that a competitive market still means opportunity is available. Take a look at the Freddie chart again, and understand that even when interest rates tripled what we see now, more than a few mortgage-related businesses were profitable—even successful. It’s just time, now, for us to get to work.
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