Do We Have Two More Great Years Ahead of Us?
On most days it feels like this two-year old purchase/refi boom will never end - especially with the equities market sucking wind and military action in Iraq imminent.
Yes, as equities go south, bonds rally and interest rates - mortgage rates especially - stay low. Just how good are things right now? According to our affiliate, National Mortgage News, lenders wrote almost $1 trillion in new loans in the fourth quarter alone. Yes, that's right, almost $1 trillion in just one quarter.
The number seems unfathomable. The real number is $941 billion, but if you round up, it comes out as $1 trillion. The optimist in me says, trumpet the $1 trillion number. Wow - $1 trillion. In the old days, most lenders would kill for a $1 trillion year.
Times change though, and as most readers already know: housing/ mortgages is the only game in the economy right now. (I think the Bush White House knows this, too.) Computers and technology? Going nowhere fast, scraping along the bottom. Telecom? Don't go there, please. Drugs and pharmaceuticals? Not much life there either. Autos? Maybe some action.
Yes, it's a mortgage/housing kind of world. And it's been that way for the past two years. How many more good years do we have ahead of us? As most industry veterans know, booms in this industry are followed by busts, usually bad busts. I've been there, you've been there. Down years are not fun for anyone, accept for servicers.
So what about 2003? Actually it looks good, maybe a $2 trillion year. And 2004? It might not be so bad after all. In other words, perhaps, the mortgage industry is no longer the cyclical beast it once was. Then again, if you believe that, chances are a Mack Truck is waiting for you around the corner.
But, seriously, I actually feel somewhat optimistic about the next two years. Here's why: the stock market is absolutely atrocious. I get the feeling that most Americans have totally lost faith in the market - not just because of accounting and corporate scandals, but because you just can't make money on stocks any more, any money at all. As I write this, the Dow is under 7900 and within a month don't be surprised to see it at 7600.
Here's a quick question: if you came into $100,000 through a surprise inheritance where would you put it: stocks or a house? If you already owned a house you might trade up or add onto your existing abode. You might even use the money to buy a rental property.
Why a rental property? Because you can rent out the house and receive income on it. If you plowed the $100,000 into stocks, in two months it might be worth, say, $90,000.
I think Americans have had it with the stock market. Many so-called experts think it will come back some day, but secretly worry (not aloud mind you), that the market is in for years of either decline or scrapping along the bottom, at say 7500 or so.
For lenders, this would be good news. As long as rates stay where they are and don't move up more than 50 basis points, consumers will continue to not just buy homes to live in, but to invest in as well. And as long as homes continue to increase in value, even just a little bit, there will be plenty of "cash out" refis to write as well.
Could it be that the rest of the decade will bring stable employment to mortgage professionals? The industry already employs 400,000-plus. There is one key wild card to consider: the federal budget deficit.
If the Bush administration gets hooked on debt and if the U.S. has to pony up on the vig to entice investors in our bonds, it could be a calamity for this industry. Now, put your hands together: pray or party, your choice.
Paul Muolo is executive editor of both National Mortgage News and Mortgage Servicing News. He can be e-mailed
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