This article is part of our HousingWire 2022 forecast series. After the series wraps, join us on February 8 for the HW+ Virtual 2022 Forecast Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the predictions for this year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.
Thanks to a boom in the housing market and a historic refinance market, the past two years have been a favorable period for the mortgage market. It was marked by hard work, innovation and resilience. In the process, a historic $9 trillion of mortgage loans were closed over two years. For many, it will represent a highlight in their careers.
2022 Forecast series
Now is a good time to plan for the next phase of the mortgage industry, which will be a different market environment. Understanding and knowing the path ahead, as well as how to navigate the new environment, will be crucial. A potential strategy for 2022 will likely depend on whether the market transitions to a purchase-heavy mortgage market, understanding why people buy homes and implementing an effective system to work with potential buyers.
The new 2022 houing market environment
The new market environment expected in 2022 is underpinned by four macro trends in the economy:
- A tight labor market with rising wages and significant turnover. According to the December 2021 jobs report released by the Labor Department, average hourly earnings have increased by around 5% over the last 12 months ending in December 2021. Higher consumer prices will likely generate further wage pressure in the economy in 2022. At the same time, the unemployment rate has decreased to below 4% in December, and a record 4.5 million Americans left their jobs in November alone, according to the Job Opening and Labor Turnover Survey. Given these statistics it is possible workers may see more work flexibility and higher wages in a tight labor market.
- The National Association of Realtors’ “2021 Profile of Home Buyers and Sellers” notes that housing demand in 2022 is expected to be fueled by millennials who reach their peak home-buying age, strong domestic migration that moves family members closer together to take advantage of a lower cost of living and a high level of turnover in the labor market.
- Inflation is becoming a focal point of policy makers, and the Federal Reserve has indicated it will be tightening monetary policy throughout 2022. Longer duration interest rates, including mortgage rates, have already risen and the Mortgage Bankers Association’s Mortgage Finance Forecast (December 2021), forecasts that rates will increase moderately in 2022, but expect them to still remain low by historical standards, even at the end of 2022.
- Like many parts of the economy, housing construction may remain plagued by supply chain challenges, labor shortages and rising costs. This could possibly leave the housing market with insufficient supply to meet the potential high demand, and home prices may increase, but at a slower pace as affordability challenges could intensify.
What are the implications for the mortgage market? It means that the refinance business could potentially decrease as fewer borrowers will have an incentive to refinance in 2022. However, growth in the purchase origination market may continue, according to the MBA’s Finance Forecast (December 2021), as more people buy and sell homes, and due to rising home prices.
On balance, economists at the MBA expect that the total origination volume could be down for the year because growth in the purchase origination market may not be able to make up for losses in the refinance market. In 2022, growing the top line may be more of a challenge and could depend on mortgage lenders gaining enough business in the purchase market to offset headwinds in the refinance market. To achieve this difficult task, it will be important to understand what motivates buyers and how to help homebuyers.
Why do they buy?
Many potential reasons fuel home purchases, but job turnover, first-time homebuyers and migration are three main drivers, and they offer different opportunities for mortgage lenders to reach potential purchase borrowers. Here’s just one possible strategy for each homebuyer type, however, many possible strategies are available to mortgage lenders.
The large number of job turnovers will likely generate many home-buying and selling transactions in 2022. This is where various social media platforms offer mortgage lenders the opportunity to reach potential homebuyers immediately after a job change.
Potential first-time homebuyers are also now reaching their peak homebuying age and starting families, prompting them to begin their search for a home to call their own. In the first half of 2021, according to Enact, around 2.5 million first-time homebuyers, on a seasonally adjusted annual rate basis, purchased homes.
Around 80% of first-time homebuyers will put down less than 20% of the purchase price as down payment. That means mortgage lenders would potentially benefit from educating first-time homebuyers about private mortgage insurance, Home Ready and Home Possible products from the GSEs, and other low down payment products. Buy now or buy later is a big decision facing first-time homebuyers.
“The Great Migration,” as it’s been called, has some people moving closer to family or into more affordable areas as remote work has freed them from previous location restraints. According to the 2021 United Van Lines Mover Study, Florida, the Carolinas, Maine, Idaho and Vermont were some of the states that experienced large inbound migrations in 2021, while California, New York, Illinois, New Jersey and Michigan experienced large outbound migrations. Shifting market presence and effort to the places where people are migrating to could be a winning strategy for mortgage lenders.
In 2022, the mortgage market could potentially move into a different phase after two years of historic market opportunity from both purchases and refinances. One potential key to success in this new market environment may be a successful transition toward the growing purchase market, and, more specifically, having an effective strategy to reach different homebuyers, understand their needs, and deliver services to them.