What’s the future outlook for the real estate lending market? Right now, the mortgage lenders we know are staying very busy. In most places, the housing market has moved beyond the recovery phase; in fact, real estate sales activity is exceeding pre-COVID-19 pace. In addition, ultra-low interest rates have swamped lenders with refinance and purchase money applications as homeowners look to lock in lower rates and further invest in things like home improvement or consolidation.
But, if this year has taught us anything, it’s that things can change quickly. There are a number of future scenarios that could play out. In fact, all of them could happen before the end of the year …
1. The market keeps trending up. As of late August, the realtor.com Housing Market Recovery Index had reached 106.6, rising 6.6 points over the pre-COVID-19 baseline. The index has grown steadily over the pre-pandemic pace for six straight weeks.
Home-buying demand surged over the summer, but many experts believe it is mostly a release of pent-up demand from the spring. While the rate of increase is expected to ease, many still believe home-buying desire will remain strong with the pandemic’s increased emphasis on life at home and Millennials’ growing interest in homeownership.
Also, the outcome of the presidential election could further stoke the market. Presidential candidate Joe Biden has proposed a tax credit of up to $15,000 for first-time homebuyers. What’s different about this proposal from past tax credits is that his proposed plan suggests that the credit could be used at the time of purchase instead of at the time of tax filing the following year. Should this become policy, a home-buying surge could follow.
2. Evolving market dynamics cause volatility. The supply and demand imbalance has been exacerbated by the pandemic. By late summer, the Housing Market Recovery Index demand levels had reached their highest point since March. At the same time, housing supply dipped below pre-COVID-19 levels.
Supply levels could continue to contract if increased outbreaks make sellers reluctant to bring people through their homes and create more worries about the ability to find a new home with the low inventory. The increased scarcity could push home prices even higher, cooling demand further as the pent-up spring demand dissipates and the economy remains uncertain.
But, there’s a good probability that interest rates will remain low, and demand could remain stable if home prices level off … or drop.
Yes, those home prices that have steadily marched upward could reverse course and drop. It’s possible that we haven’t yet felt the full economic impact of the pandemic. Many of the stimulus efforts have ended, and Congress has yet to agree on further relief efforts. During the Great Recession of the not-so-distant past, we saw what happens when households miss mortgage payments on a widespread level. There are still a sizable number of households in forbearance compared to pre-pandemic levels.
3. The market plummets again. Increased COVID-19 outbreaks in the fall and winter could cause another market dip. Even amid the summer’s strong market, a survey by Fannie Mae showed a drop in consumer confidence about whether it was a good time to buy or sell a home. The pandemic uncertainty is causing an underlying nervousness that could quickly turn to fear.
To be clear, there are no signs of a market crash looming, but there are worst-case scenarios that could emerge during a long-stretching pandemic.
With so many possibilities on the table, how can lenders prepare? We don’t need a crystal ball to answer that one. By focusing on three key things, lenders can be prepared to serve borrowers in the fast, efficient and personalized way they’ve come to expect – whatever the future holds.
1. Remaining adaptable. Right now, there’s no room for “the way we’ve always done it.” With no corner of life untouched by the pandemic, flexibility in the way financial services are delivered is becoming increasingly important to borrowers.
The events of 2020 have demanded fast and ongoing adaptation. Lenders will be well-served by continuing to explore new ways of doing things that include a heavy emphasis on injecting meaningful technologies into the lending process. Considering incorporating technology throughout the entire process – not just the borrower-facing portions. If your back-end processes aren’t’ streamlined and efficient, it just won’t translate into a good borrower experience, no matter how simple the application process is.
2. Smart use of technology and tech partnerships. Following on the first point, financial institutions should have the tools in place to quickly shift to contactless protocols when the circumstances demand it. Partnering with fintechs puts options at the fingertips of loan officers and their teams – without the internal development costs that drain precious time and resources.
Truly contactless lending is possible today; and I’m not talking about “porch or curbside” mortgage and home equity closings that simply add physical distance. Using Remote Online Notarization, for example, makes the process completely contactless – and borrowers love the convenience.
3. Identifying problems before solutions. As I meet with credit union and bank staff and executives, I hear a lot of them obsess over the solutions for efficiencies and borrower experience. One common statement is “we need more integrations.” It’s entirely true that an integrated technology stack will be far more efficient – but what is it that you’re truly trying to accomplish and why?
Recently, we worked with a financial institution that wanted to shorten the turnaround time for a home equity loan. Because they were already focused on integrations, the solution the team presented was to integrate their appraisal and title vendors into the technology. While this was a good idea, it didn’t address the root problem causing their 45+ day timeline, which they wanted to reduce by more than half. They first needed to acknowledge that their internal processes and workflows created barriers and needed a systematic overhaul. Don’t be afraid to look problems in the eye, ask questions, and stress-test the answers.
The only outlook we can really say with confidence is that the future is uncertain and unpredictable. The best thing we can all do is keep our focus where it matters most – on the consumer. Follow their behavior, tune into their wants and needs and deliver the right solutions and best experience. No matter what happens, that strategy always wins.