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The US mortgage industry has seen record-breaking figures in 2020, amongst the global pandemic with the value of US mortgages rising to 16.56 Trillion. As the Federal Reserve took the interest rates to record low levels to accommodate the ongoing situation, there was a spurt in growth in loan origination.
The pandemic also brought several macro changes throughout the world & accelerated remote working. Also, to accommodate the latest work scenario, people decided to upgrade to bigger homes in suburbs or cheaper metropolitan areas as an intelligent future move.
Due to these several lifestyle changes, experts are wondering how the US mortgage industry will be affected in 2021. According to them, we will see the onset of several new trends. Some of the recent developments in the US mortgage industry are:
Mortgage rates are on the rise
March 2020 saw a benchmark drop in federal funds rate brought by the Federal Reserve. This rate was observed to be the lowest in almost 50 years, which changed the complete scenario of the mortgage industry. The average interest rate for a 30 year fixed rate mortgage was brought down to 2.67 in mid-December. However, in January, the rate dropped once again to 2.65%. Currently, the rates
have been rising for over five consecutive weeks witnessing a rise of the third 3% plus week since July 2020.
According to Freddie Mac, the mortgage rates will continue to inch upwards which will profoundly affect several aspiring home-owners.
Migration to Suburbs
There were several speculations that in 2021 there would be a mass exodus. However, several lenders believe that there will be a steady migration, but the chances of the mass exodus are meager. To accommodate the higher cost of living, several people will choose to move out of costly metropolitan areas and move into less expensive metro areas and suburbs.
As remote working saves families the cost of traveling, they are more likely to move to bigger houses in affordable areas. This trend will increase single-family housing considerably.
Falling sales and Increasing prices
As per the National Association of Realtors the existing home sales have been going downhill with a drop of 6.6 percent since January moving to 6.22 million of seasonally-adjusted rate of housing units.
The house prices continue to climb being driven by higher-end home sales with reports showing the median home price being up by 15.8 per cent from last year to USD 313,000.
The housing market has left the available properties for sale at record lows, down by around 29.5 per cent from last year to just 1.03 million homes available.
At the current rate of sales, it is equivalent to a supply of around 2 months from the earlier 3.1 month supply. The reason for the price rise can be thus linked to a drop in the availability of homes.
Originations of loans likely to drop
Although home sales will rise this year, the origination of loans might drop. The migration from metropolitan areas to suburbs will likely increase home sales in the less expensive metro areas. However, experts suggest that these sales will not benefit the origination of loan rate as much as they would have liked.
A drop in Commissions
As there will be a decline in organizations, it will also cause a decrease in commissions. This will be brought by a lower number of refinancings and will severely affect companies who saw successful numbers the past year. Several mortgage financial lenders expect a slowdown in revenue and income growth compared to last year’s growth.
How can Optimar help you?
These recent trends will be challenging for all the parties. As we witness the rise in interest rates the profit margins are bound to squeeze.
To help you maintain margins and operate in a volatile environment you can leverage Optimar’s Global Team solution. With our manpower & IT infrastructure support services you will be able to reap the benefits of remote working, access global talent, incur zero capex and reduce operational costs by up to 60%.
We have recently helped a couple of American mortgage companies increase cost savings by hiring their virtual team (underwriters, loan approvers from companies like Better.com and Wells Fargo) in India, leading to a 15-20% increase in efficiency.
So, it's the right time for you to get started and make your next business move as we witness the return of rising US mortgage rates resulting in challenges surrounding growth and and sustainability.
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