Wayne Gretzky, the National Hockey League Hall of Famer, once told a reporter, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” This philosophy should be no different for a mortgage loan originator, since we too must adapt to the market environment around us. Where do you think the puck is going to be over the course of the next year (or 10) and how have you positioned yourself to take advantage of it?
Clearly, much of the mortgage market over the past year has been driven by refinancing and first-time homebuyer purchases. The refinancing market has been as dependable as the seasons for the past couple of decades. You could rest assured that every few years would bring a rate reduction that would drive homeowners to the refinancing table as predictably as geese migrating south for the winter. However, the future economic environment will challenge this cycle and likely change the dynamics of our business significantly. One thing we will continue to be able to count on, however, is the strength of the first-time homebuyer market.
Now, many of you will argue that the first-timers who accounted for roughly 50 percent of all home sales last year was an anomaly; that this new record was driven purely by the temporary “fix” of the first-time homebuyer tax credit. But before you go back to your desk and pick up the phone to buy more refi and loan modification leads, let’s take a look at some facts.
First, every major consumer trend in our history has been driven by our demographics, most notably, the Baby Boomer Generation which drove the sale and development of everything from disposable diapers to mutual funds. As these Boomers age and move into their non-income earning years, the consumer effect of Boomer-related cohorts will begin to diminish. Who, if anyone, will take their place? The growth of our population, and the characteristics of the consumer, will be driven once again by immigration as it was for the early part of the 20th Century. Unlike many industrialized countries, the U.S. still benefits greatly from immigration. While our birth rate is roughly the population replacement rate, our population growth rate of one percent is at or above the world average, which is significant for a nation of more than 300 million people. According to the U.S. Census Bureau, fully one-third of our population growth can be attributed to immigration, with Hispanic and Latino Americans representing more than half of that growth. They also had the fastest-growing rate of homeownership of any racial group over the last 10 years. These immigrants will be the homebuyers in the decades to come.
Beyond simply the growth of our population, we are also seeing that while our overall population is “graying” due to our aging Baby Boomers, people under age 20 make up more than a quarter of the population. If, as Elliot Eisenberg’s study of First-Time Homebuyers found, the average age of first time buyers is 33, we should feel confident that as this population segment ages, they will be looking for homes, just as the Baby Boomers did, providing fertile ground for homeownership opportunities for a decade or more.
Beyond the long-term trends that favor first-timers, there are also tactical reasons to focus at least part of your marketing effort on this client profile because the financial incentives for purchasing a home are considerable. In addition to the first-time homebuyer tax credit, there are also downpayment assistance programs and other first-time homebuyer programs sponsored by state and local governments that can assist buyers in getting into their first home. Far from the seller-funded shell games of the past, these organizations provide valuable resources at a time when virtually every privately-funded concern is tapped out and credit has become tight, to say the least. These programs can provide assistance in amounts of $30,000 or more depending on your area. To be fair, there is certainly bureaucracy associated with downpayment assistance programs, and they are not for everyone, but lenders who hope to penetrate this market should become familiar with what is available in their market. With possible Federal Housing Administration (FHA) changes that include higher downpayments and reduced seller concessions, these programs will take on a great importance.
Lastly, as a result of the housing slowdown, home affordability is at its highest level in decades. According to the Center for Economic Policy Research, median home prices averaged 15 times annual rent for decades … until the housing bubble. In some parts of the country, this factor reached 25 times rents and only now are we seeing the averages approach equilibrium again. As we continue to work our way through the glut of housing supply, the monthly debt service on a mortgage will become more economically attractive than comparable rents, driving those renters who can qualify to homeownership.
If indeed, the first-time homebuyer represents the backbone of the housing market for years to come, how will you capitalize on this trend? Here are some simple strategies a mortgage originator can pursue to position themselves as an expert:
1. Familiarize yourself with first time homebuyer assistance programs in your state and align yourself with lenders that embrace these programs. Many lenders don’t want to invest the time and money understanding and participating in these programs.
2. Introduce yourself to the leaders of the various Community Development Corporations (CDC) in your area. These are the organizations holding the purse strings of the first-time homebuyer and downpayment assistance programs, so they are certainly good people to know.
3. Determine who the real estate agents, builders and developers are that specialize in entry-level housing. If this is where the buyers will be looking, you want them to find you. Perform online searches for agents that work with first-timers and see who is conducting first-time homebuyer seminars in your area.
4. FHA and VA loans are the overwhelming financing choice for these buyers, so become intimately familiar with these programs and the ongoing changes with them. Hosting Realtor and homebuyer seminars that focus on the intricacies of government loans programs will position you as an expert in the field.
In the ever-changing mortgage markets, the successful mortgage originator has to be nimble. Relying on strategies that worked in the last few years won’t necessary help you survive in a market that is expected to further contract over the next couple of years. Maybe you have more high-end purchase business than you can handle, but if you don’t, seeing yourself as too good for the entry-level buyer may end up costing you more than just a loan or two.
Mike Lesmeister, CRMS, is a licensed mortgage loan originator and managing partner with Home Loan Specialists Inc. based in Houston. He has more than 20 years of financial services experience and is also the founder of Blue Ribbon Agents, a Realtor marketing program for Houston area real estate agents. Mike may be reached by phone at (832) 286-1600, or by visiting www.hlstx.com. You can also follow him at twitter.com/mikelesmeister or connect with him at linkedin.com/in/mikelesmeister.