As policymakers at the Federal Reserve mull the pace of additional interest rate cuts, mortgage originators find themselves workshopping sales pitches to would-be borrowers who are eager for financing costs to fall, but dismayed they may not fall as quickly as desired.
Reports describing degrees of pent-up purchase demand vary. Suffice it to say: had affordability and inventory cooperated over the past two years, millions of would-be homebuyers currently priced out of the market would have leapt at the chance to enter the housing market.
“There’s a lot of pent-up demand,” says John Paasonen, CEO and co-founder of Maxwell, a business intelligence and technology solutions provider serving small and mid-size mortgage lenders. The company recently published findings from a survey of 1,000 sidelined homebuyers looking to enter the market over the next six to 12 months. “There are a lot of homebuyers that have been sidelined by the interest rate environment, and they’re eager to get back in,” Paasonen told NMP.
To originators, the report reveals how these would-be buyers are getting positioned as the market transitions.
Though the majority of sidelined homebuyers looking to enter the market in the next year have already been prequalified or preapproved for a loan, Maxwell found, 40% have not yet connected with a mortgage lender. Most sidelined homebuyers surveyed (77%) reported they are “somewhat” or “very” prepared to buy once rates fall. That mortgage rate tipping point is 5.5%, they report.
Of those who have connected with a lender, 53% spoke with a national bank, 29% connected with a community bank or credit union, and just 18% reached out to an online lender.
When asked what support they need to help achieve homeownership, 32% reported wanting more information about down payment assistance (DPA) or low-money-down loan options, 31% want help understanding the full financial picture of owning a home, and 25% want assistance with boosting their borrower credentials.
“That’s great news, I think, for loan officers. I think going in and sharpening skills on products like HomeReady and other things that the [government-sponsored enterprises] have created, being aware of the down payment assistance programs in your state. Those are all super important for loan officers just to be ready,” Paasonen explains.
Maxwell’s report also reveals the lengthening of the homebuying timeline in recent years for many would-be buyers. More than half (54%) of those surveyed reported searching for more than a year for a house, with nearly 18% looking for two years or more. “The average time it takes to find a home to buy is 4.5 months, not including the lending process,” the report reads.
The impact of sidelined borrowers’ inability to get in a home is also underscored in the report. Of those surveyed, half say the housing market has caused them to consider relocating to a different city and/or state to find a viable option. Meanwhile, 35% moved in with family to save money for a down payment, and 31% delayed plans to have a child or additional children.
These real-life impacts represent additional costs of an affordability crisis that mortgage originators and brokers are positioned to help their clients navigate.
Meanwhile, the majority of respondents are very focused on how the outcome of November's U.S. presidential election may ease their path to homeownership. Two-thirds (66%) say housing-related policy is important in who they vote for in November’s election, with the most vital policies to respondents including: incentives (low-interest loans, loan guarantees, grants, and tax breaks) that encourage the conversion of commercial property to housing (53%); more favorable mortgage terms (51%); and, tax subsidies for homeownership (42%).
“Often, personal struggles and lived experiences drive political fervor — so I’m not surprised to see that the vast majority of sidelined homebuyers are engaged in housing policy discourse,” Paasonen says.
