The Power Is Now real Estate Magazine | January 10, 2022

the power is now REAL ESTATE MAGAZINE

MORTGAGE LENDING TRENDS TO WATCH IN 2022 page 4

REAL ESTATE FOR SALE! JANUARY 10 | 2022

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POWER MORTGAGE

Mortgage lending trends to watch in 2022

I

f anything, the uncertainty of the Covi-19 pandemic re-emphasized the importance of modern infrastructure of the mortgage lending industry. As a result, many of the ‘traditional’ mortgage lending companies were forced to invest in technology to accelerate innovation and keep up with their customer’s expectations. In addition, to ensure economic progress, lenders have been forced to be responsive. One of the ways this has been done is by creating new business models that target new clientele and new market segments and future-proofing new strategies.

LOOKING AT THE 2021 MORTGAGE MARKET The mortgage lending industry in 2021 stayed relatively healthy even with the pandemic, and it seems that the market will remain strong and continue to prosper in 2022. Even though some say that the market is likely to crash, many people are bullish about the industry predicting higher rates perhaps fueled by high home prices as demand for homes continues to rise.

The 2022 mortgage lending industry is likely to be just a watered-down version of 2021 which means, a moderate increase in home prices resulting in less competition, but the market could still be hot.

I am looking for how the industry will cater to the changing needs of the various generations in the U.S., especially millennials who are looking for a more digital experience, which means the industry might have to transform its entire mortgage chain.

A global survey of financial services professionals by Infosys concluded that “Mortgage providers that spent on digital infrastructure capitalized on their investments during the [pandemic] crisis, while those tied to physical paperwork lost new business,” the survey 4

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continues to add that, “Instead of just surviving, many companies leapfrogged their competitors using new digital capabilities, and those companies will continue to race ahead in this new — and still evolving — mortgage market.”

But, here are some of the trends to watch out for in 2022.

RATES WILL RISE BUT STILL BE LOW. In 2020, the rates hit a record low of 2.66% towards the end of that year, rising only at the start of 2021 but still hovering below 3% for most of the year.

In 2022, the rates are likely to rise, but we are bearish on the rates rising dramatically. But, likely, the market might never see the rates dip below the 3% mark again.

One of the predictions the Mortgage Bankers Association gave is that the rates might rise, hitting the 4% mark by the year’s end, and that’s on the high side. But on the flipside, Fannie Mae expects that the rate for the 30year fixed will float at an average of 3.4% by the year’s end. These two organizations, Freddie Mac and the National Association of Realtors all agree that the mortgage rates will rise steadily in 2022.

How feasible is this prediction? It’s fair and reasonable given the fact that the Fed has a plan to slowly let go of the market by tapering its purchases of mortgage-backed securities and treasury bonds.

This will dramatically affect mortgage rates, which makes sense why they may rise in 2022.

Still, it is important to note that the markets are fickle, and it’s not always that they will obey prediction. With the uncertainty about inflation, employment, and the pandemic, it’s agreeable that the market rates will zig, but that doesn’t mean they cant zag!

HOME PRICE WILL STILL BE ON TEAR… NOT AS FAST AS IN 2021 Home prices were unstoppable in 2021, and the trend is expected to continue in 2022 but rise THE POWER IS NOW REAL ESTATE MAGAZINE

moderately.

In 2021, median home prices rose by double digits year over year, with the highest median price reached in June 2021- $362,800, nearly $60,000 over the median price in January 2021. The third and fourth quarters of 2021 were market by less heady price increases, which set the precursor trend for 2022.

On the high end, Fannie Mae seems to express strong bullish sentiments about price rising, predicting a 7.4% year-over-year growth, while Freddie Mac puts its prediction at 7%. On the other hand, MBA anticipates the price to increase 5.2%, while NAR is the outlier predicting a 2.8% yearover-year growth.

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So what does this mean? Well, assuming you bought your home in September 2021 at $352,800, the potential resale value for the home would be $372,557 in 2022.

While the rate of appreciation is slowing down, the idea that the median existing-home prices are getting higher and closing the $400,000 mark is more than alarming.

And let’s face a fact here, the prices are slowing down not because inventory is getting added in the market, no! The potential buyers are getting priced out of the market hence a weaker demand, thus slowing price growth.

First-

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time home buyers will not be safe and what we are expecting in 2022 if the price keeps rising is that the percentage of buyers who can afford a home will fall further below 30% for the first time in a long time. If home prices continue to rise, the higher prices might take the edge off the demand, which thus causes a setback on the rising prices.

AFFORDABLE HOMES WILL BE HARD TO COME BY A fact- while home prices were soaring month after month, the inventory of existing homes for sale did grow throughout 2021.

However, the growth was tight falling short of satisfying the demand from buyers. At one point, it would take about six months or even more to sell all the houses on the market at the current prices which in a way favored the buyers, but it was still a seller’s market. The latest data from NAR (September- the time of writing this article) show that the U.S. is at a mere 2.4 months’ supply.

At the same time, affordable homes remained harder to find which is one factor that drove prices up. One study by Harvard’s Joint Center for Housing Studies that

analyzed home prices in the 100 largest U.S. Metro Areas found that in 2020, a household making 50% to 80% of the area’s median income could afford to buy a home in only 39 of those metros.

That assessment was done at a time when we have historically low mortgage rates which are helping make homes more affordable. So you can expect the situation to get more desperate in 2022.

SELLERS WILL STILL DICTATE THE TERMS The inventory is low and most sellers are receiving more than a dozen offers. This is a trend that’s expected to hold in 2022. A survey by the National Association of Home Builders that regularly surveys buyers who have been house hunting for three months or more found that one of the top reasons these folks hadn’t bought a home was that they got outbid.

While some of the markets are still red hot, some are starting to see moderation. In the markets where sellers are accurately pricing their homes, these properties are seeing pending contracts in 10 days or even less. However, to get the best offer, sellers have to prepare their homes and they also need to be in perfect condition. These are some of the things that buyers are willing to renegotiate and sometimes waive the inspection and appraisal contingencies.

With the market slowly cooling down, buyers are getting a fair shot at homes from the listing agents and sellers allowing the homes to sit on the market a little longer. l

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