The National Community Reinvestment Coalition (NCRC) released its October 2024 Mortgage Market Analysis, which comes after “an unprecedented perfect storm” researchers stated in the report.
Stormy is one way mortgage professionals would characterize the 2023 mortgage market since the entire market of homebuyers was affected by worsening market conditions. However, a new issue has developed, which disproportionately impacts underserved borrowers. A combination of rising home values attracted real estate investor purchases, while higher borrowing costs limited the options for homebuyers. As interest rates and low inventory keep home prices elevated, real estate investors swept in to buy those high-value assets and ate up even more of the remaining inventory.
According to the NCRC report, low interest rates spurred an investor gold rush that eventually caused a power shift from traditional owner-occupant borrowers toward medium- and large-scale landlord operations, creating unmet demand for affordable options like manufactured homes or smaller mortgages.
The data shows a consistent increase in mortgage loans granted to investors starting at 4% in 2018 and peaking at 9% in 2022. As a result, investors ended up setting prices and rents across many communities, decreasing the availability and affordability of homes for first-time and lower-income homebuyers. In 2023, over 8% of home purchase loans were made to investors, and 12% of refinance loans were secured on investment properties.
Even though large corporate buyers control a relatively small portion of the total single-family rental (SFR) market nationally at about 3% — their impact is considerably more significant in specific local markets. In areas with high growth or high rental demand, such as Atlanta, Phoenix, and parts of Florida, their market share can be substantially higher. Since the pandemic especially, large-scale investors in the single-family rental space have aggressively increased their share of the market.
Overall, the 2024 report contained both positive and negative takeaways.
Positive Takeaways:
- Credit unions increased their market share, particularly in home equity and home improvement lending, as non-bank lenders retreated.
- Growth in lending to Black borrowers: increasing their share of home purchase loans from 9% in 2021 to 9.3% in 2023.
- Growth in lending to Hispanic borrowers: increasing from 12% in 2021 to 13.9% in 2023, with home purchase loans for Hispanic borrowers rising from 14.9% to 16.5%.
Leading Concerns:
- Regulatory oversight needs to be strengthened to close loopholes that led to a nearly total absence of demographic data from secondary-market purchased loans.
- The share of loans to Hispanic and Black borrowers increased slightly, but cost and value metrics raise concern that non-White and less-wealthy homeowners might not gain the same long-term wealth-building advantages from their homes as others.
- Rising interest rates and increased housing costs disproportionately affected low- and moderate-income (LMI) borrowers, making it more challenging for them to enter the housing market.
- Investor activity impacts the amount of single-family inventory. There has been a noticeable increase in investor purchases of single-family homes, particularly in lower-cost units and Sunbelt markets. This trend has made it more difficult for families to transition from renting to homeownership, as investors often outbid potential homebuyers.
