Finding The Cure For The Summertime Blues

Adapting to a rising rate environment

Insider

Managing Director

Thomas Fuller, a 17th Century English historian, once said, “We never know the worth of water until the well is dry.” Fortunately, the “well” of borrowers looking to buy or refinance a home is nowhere close to dry — but it’s a lot less full these days.

As the summer homebuying season approaches, there are plenty of reasons to feel a little uneasy. Our industry has had a very strong run for several years now, but the housing waters are not as calm as they have been. Then again, I’m a firm believer that opportunities can be found in any market. It may just take a little more work and ingenuity to find them.

Understand the Reality

Today’s challenges are difficult to spell out. We’ve had a long, long period of low interest rates, kept low by a global pandemic, a troubled economy, and some help from the Fed. Low rates combined with minimal housing inventory have pushed home prices to record levels. In fact, in March, the Case-Shiller Affordability Index reached the highest level on record.

At least during the pandemic, homebuyers were still being treated to sub-3% rates. But that changed this year, when the war in Ukraine, higher gas prices and rising inflation lit a fire under rates, which have shot up to over 5%. And with the Fed poised to raise key rates this spring, they may go even higher.

The housing market is already feeling the impact. No one was surprised when mortgage applications fell in March, the precise time of year when they normally head in the opposite direction. Meanwhile, the National Association of Realtors’ chief economist recently told CNBC that home sales volume could fall between 6 to 8% this year.

We’re also seeing massive push by institutional investors in buying up real estate. This is partly because Fannie Mae and Freddie Mac have stayed out of the non-owner second home market and continue to focus on owner-occupied housing. Home buyers — and by extension, mortgage lenders — are also facing new competitors that are coming out of the woodworks. For example, there’s a company that makes a cash offer on homes and holds the note for the borrower in case the borrower doesn’t close on the property.

The one positive for buyers, if there is one, is that we’re likely to see some relief on home prices as appreciation gets squeezed. However, going from 10 offers per property to five is not going to be much of a breather. At FoundIt Homes, the real estate brokerage division of Cherry Creek Holdings, we’re still seeing sellers get multiple offers way over asking price, often regardless of the condition of the property.

But sellers aren’t immune from today’s market challenges, either. If they sell, where are they going to go? This pandemic has taught us that we can just be as productive at home as in the office. Many Americans are able to work pretty much anywhere where there is a good Internet connection, which has led to a mass exodus out of urban centers in wintry states like New York and New Jersey to smaller towns in the country’s interior. But that is now pushing up prices in these areas as well.

The key to success in mortgage sales has always been relationships, but these relationships are obviously going to be more important than ever.

Time to Make Adjustments

In short, we’re in survival-of-the-fittest mode, and the originators who relied solely off the extended wave of mortgage refinancing are not going to survive. The market is not all doom and gloom, but mortgage professionals who hope to keep their pipelines full will need to adjust their strategies.

Part of the answer may lie in what smart, experienced originators are doing right now. The key to success in mortgage sales has always been relationships, but these relationships are obviously going to be more important than ever. At Found It Home Loans, we’re extremely fortunate to have many experienced, top performing loan officers on staff. At this moment, they are all focused on helping agents put their borrowers in a competitively advantageous position, primarily by providing fully underwritten loan approvals instead of the typical pre-approval as well as other creative solutions to better position their clients to win their offers.

The higher-level originators in my company are also working religiously with their contacts and trying to capture clients earlier in the sales funnel. Many are also working with agents to write shorter offers and advising borrowers to get appraisal gap coverage, which is very much a thing. As I see it, the originators who thrive in this market will be those who work with or for lenders that are able to offer these things as well as deliver fast closings. That includes same-day pre-approvals and the ability for borrowers to upload documents online, which can help shorten purchase loan closings to as little as two weeks.

Successful originators will also be those who are able to offer a rich array of jumbo loan options and are backed by an internal team of marketers as well as lead generation and business building tools. As relationship building becomes more important than ever, originators will need to lean on mobile technologies that enable them to engage and stay connected to both referral partners and consumers, especially in hot housing markets where it may take two or three tries to purchase a home.

In spite of the market challenges, I think this is a great time for women mortgage professionals. It’s a very stressful market for everyone, especially first-time borrowers. Psychology is a big part of what mortgage professionals do, where they have to be mom, dad, teacher, judge and jury.

Most women are naturally empathetic and able to relate to different personalities extremely well. It may take more creative ways to help borrowers get to the closing table. But in my experience, women originators and real estate agents are great problem solvers and able to think outside the box when it comes to getting homebuyers across the finish line.

Today’s housing market is simply doing what it has always historically done — move in cycles. So while this latest market turn has been abrupt, at the end of the day, each of us have zero control over macroeconomic trends. Regardless of how high the well is, our job remains the same: helping borrowers achieve their goals to the best of our ability. The strong will evolve with the challenges into a resilient professional, recognized for their ability to thrive in any market.