Opinion

Digital disruption, low rates and more to reshape mortgage lending

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While 2019 was a seller's market, for this year there are several trends that support a shift toward the buyer. At the same time, there are many issues still overhanging from last year that push the needle towards the seller.

While mortgage rates ended 2019 lower, home inventory was restricted, which contributed to home values appreciating in many U.S. metros. That made for a challenging environment for buyers.

How will that compare to what this year has in store? It is the start of a new decade, and here are six trends that will play a critical role in reshaping the mortgage industry.

Get ready for the rise of digital disruption

The mortgage and real estate industries will continue to experience digital disruption. Technology will rapidly reinvent the mortgage experience in 2020 and create an environment where consumers can quickly be prequalified online and close their loans significantly faster than in previous years. These digital solutions and capabilities are particularly appetizing to the first-time home buying audience and as rates remain favorable and offerings continue to improve/evolve we expect to see more movement here.

Low fixed rates offer a compelling play

According to key indicators, mortgage rates will continue to stay low in 2020 and perhaps drop even lower than current levels. This means we can expect 2020 to continue to be a strong environment for mortgage refinancing. Homeowners will have an opportunity to significantly reduce monthly cash requirements or remove risk by moving from adjustable-rate mortgages into low-fixed-rates. This low rate environment has also helped to extend the typical late February/early March through July buying season to be virtually year-round.

Home inventory remains tight in most markets

Home inventory will continue to be restricted, as only 9.8% of Americans moved from one location of residence to another (between March 2018 and March 2019), the lowest geographic mobility on record since the Census Bureau began tracking this data in 1947. A partial cause of these tight inventory levels is that more baby boomers are holding onto their properties as consumers wait out signs of a potential recession. This means buyers need to be ready to act with pre-approvals/prequalifications already in place when they find the home of their dreams. It also places a greater onus on buyers to work ahead of time to pay off debt to help improve their credit scores to put themselves in the best possible position for mortgage success, as a restricted market naturally creates greater competition.

Millennials are finally in the market

Despite housing market restrictions, the ranks of millennial first-time homebuyers are finally on the rise. High home costs and a competitive market have traditionally delayed millennials from purchasing homes, but this trend is shifting. For instance, data from the national homebuilder Toll Brothers says 20% of buyers of their properties in 2019 were 35 or younger.

Home values will continue to appreciate

Data shows home prices will continue to appreciate in most markets by an average 5.6%, according to CoreLogic, which is far higher than the 3.5% appreciation in 2019. This would allow homeowners interested in selling to do so with the possibility of a strong return on their investment. For homeowners not interested in selling, increased equity in their homes offers the opportunity to opt for cash-out refinancing to pay off debt or get their money working harder with investment opportunities.

Go big and go home

The jumbo market will continue to be strong in 2020. The Federal Housing Finance Agency recently announced it is raising the conforming loan limits for Fannie Mae and Freddie Mac to more than $510,000. In most of the U.S., the 2020 maximum conforming loan limit will be raised to $510,400, up from 2019's level of $484,350. This means borrowers should look to work with lenders with strong expertise in underwriting jumbo loans and the special borrower qualifications that come with these types of mortgages.

This year is certain to be one of continued change in the mortgage and real estate industries driven by digital disruption. Advances in technology will streamline the mortgage process, bringing the realization of a quicker, easier way of doing things with greater transparency while removing many of the obstacles of the traditional home loan process.

These advances are also coming at a time when the make-up of the buyer landscape is shifting to a younger, more tech-native generation. All of these market forces offer an opportunity for buyers and sellers to capitalize on them and make educated decisions on their investments and their futures.

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