At the crossroads: Helping buyers is not just about easing the process
With the first half of 2019 in the books, the mortgage industry finds itself at a crossroads. On the one hand, new innovations are pushing the market closer than ever toward digital mortgages, which is surely something to be excited about. On the other hand, too many would-be homebuyers are struggling to get their share of the American dream.
Here are three trends taking shape in 2019, and where I think they will lead.
The housing market is in flux
While each housing market is different, most markets are in what I would call an adjustment phase. Several major metro markets, like Los Angeles, Chicago and New York, are no longer affordable for first-time buyers, especially younger ones. We're also seeing many young people moving to cities like Seattle, Portland and Austin, which has pushed home prices in these markets to unaffordable levels as well.
For younger buyers in these markets, buying a home based on what they can afford may mean getting three or four people to share in the cost of a home. Meanwhile, in many other markets, a soft adjustment is taking place with declining appreciation and decreasing inventories. And still in other markets, home prices remain affordable to first-time buyers.
So, we're really seeing a very diverse market for buyers, while affordability concerns continue to grow. During the rest of the year, I expect first-time homebuyers should remain at the low 30% range of all homebuyers. That's assuming mortgage rates remain favorable, which they will.
Homebuyers need more help
One reason affordability continues to be a concern is the elimination of homebuyer and homeowner benefits during the last round of tax changes. Politicians may tell us people are still buying homes despite these changes. I believe they're hurting buyers, especially considering current market conditions.
Tax benefits for homeownership are important in any market, but especially when housing affordability is falling as it is today due, in part, to low inventory. In fact, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index, housing affordability fell to nearly a 10-year low in the first quarter of the year.
Potential move-up homebuyers in moderate-priced properties lose the incentive to move up from their current homes without the mortgage interest rate and property tax deductions to offset buying higher priced homes.
Federal and state governments need to step up and provide more incentives for all buyers, particularly first-time buyers, as they've done in the past. We also need more support from the National Association of Realtors, the Mortgage Bankers Association and other housing groups in Washington. These groups should be pushing harder to get incentives back on track.
At some point, the housing market will either flatten or decline, or both. When that happens, we'll need to have tax legislation in place that gives first-time buyers, retirees and ordinary Americans who want to invest in real estate a reason to invest in their share of the American dream. For everyone's sake, let's hope that we do.
A better consumer experience
One of the most positive things that has happened in our industry over the past year is the impact that automation has had on the consumer experience. While borrowers have been able to shop for homes and apply for mortgages online for some time, today's online dashboards, shared by borrowers and lenders, are bringing greater transparency to all parties in real estate transactions, leading to faster, more efficient closing processes.
So far in 2019, we've seen rampant progress toward remote online notarizations and e-closings, which are important components of achieving fully digital mortgages. Before the year's end, we may see several more U.S. states join the nearly two dozen others that have legalized e-notarizations. I also see RONs being a key component of more collaborative and transparent digital mortgage processes that are quickly taking shape.
Of course, innovation alone isn't going to keep the housing market healthy or make housing more affordable. But it can make the process less frustrating and more efficient for consumers — plus the impact of the changes happening in the industry today are going to have long-lasting cost benefits for the future. For those of us involved in this effort, it's an exciting prospect and certainly something to be proud of moving forward in 2019 and beyond.