Tackling Rising Mortgage Rates in the US
US Mortgage Industry: Trends and Challenges in 2021
The challenge of rising mortgage rates in the US mortgage industry became evident in 2020, with the value of US mortgages reaching $16.56 trillion amidst the global pandemic. The Federal Reserve’s decision to lower interest rates to record lows spurred growth in loan origination. Additionally, the pandemic brought macroeconomic changes worldwide, accelerating remote working trends and prompting lifestyle shifts. Many opted for larger homes in suburban or less expensive metropolitan areas.
In 2021, several new trends and developments are shaping the US mortgage industry.
Key Trends in the US Mortgage Industry
Rising Mortgage Rates
In March 2020, the Federal Reserve reduced the federal funds rate to its lowest level in nearly 50 years, reshaping the mortgage industry. The average interest rate for a 30-year fixed-rate mortgage dropped to 2.67% in mid-December 2020 and 2.65% in January 2021. However, mortgage rates have been rising for five consecutive weeks, with the third 3%+ week since July 2020.
According to Freddie Mac, rates are expected to continue increasing, impacting many aspiring homeowners.
Migration to Suburbs
While there were speculations of a mass exodus in 2021, lenders predict a steady migration instead. To reduce living costs, many individuals are moving out of expensive metropolitan areas into affordable suburbs. Remote working saves travel costs, enabling families to move into larger, more affordable homes, driving single-family housing growth.
Falling Sales and Increasing Prices
The National Association of Realtors reported a 6.6% decline in existing home sales since January, down to 6.22 million seasonally adjusted housing units. However, house prices continue to climb, driven by higher-end home sales. The median home price has increased by 15.8% from the previous year to $313,000.
The housing market is experiencing record-low property availability, down by 29.5% from last year, leaving just 1.03 million homes for sale. This is equivalent to a two-month supply, down from 3.1 months. The price rise is directly linked to reduced housing inventory.
Loan Originations Likely to Drop
Despite rising home sales, loan originations may decline. Increased home sales in less expensive metro areas may not boost loan origination rates as expected.
A Drop in Commissions
A decline in loan originations will also lead to reduced commissions, primarily due to fewer refinancing activities. Mortgage lenders anticipate slower revenue and income growth compared to 2020.
How Can Optimar Help?
The evolving trends in the mortgage industry present significant challenges. Rising interest rates will compress profit margins, demanding innovative solutions.
Optimar offers a Global Team Solution to help mortgage companies maintain margins and thrive in volatile environments. By leveraging Optimar’s manpower and IT infrastructure support services, you can:
- Reap the benefits of remote working
- Access global talent
- Incur zero capital expenditure
- Reduce operational costs by up to 60%
Optimar recently assisted American mortgage companies, including Better.com and Wells Fargo, in building virtual teams of underwriters and loan approvers in India. This resulted in a 15-20% increase in efficiency and significant cost savings.
Take the Next Step
As the US mortgage industry adapts to rising rates and operational challenges, it’s the right time to make strategic decisions. Partner with Optimar to secure your business’s growth and sustainability.
At Optimar Consulting, we help businesses navigate market challenges by offering cost-effective remote staffing solutions, including specialized support for mortgage and financial services. Our expertise extends to global talent acquisition, ensuring businesses stay competitive even during economic uncertainties. Additionally, our sister company, Optimar Precon, provides BIM modeling, CAD drafting, and construction estimation services, supporting the AEC industry with high-quality preconstruction solutions.
Contact Us today to get started.