Featuring the perspectives of:
Art Aguilar, Branch Production Manager, Revolution Mortgage
Dave Barnhart, Division President – Homebuilding Division, First America Homes
Paige Bowman, Team Leader, The Mortgage Collective – Fairway Independent Mortgage Corporation
Jeremy Collett, Executive Director of Capital Markets, Guaranteed Rate
Alyson Griffin, Branch Manager, CrossCountry Mortgage
Will interest rates continue to rise next year, and what impact will rates have on the market?
Bowman: Rates could continue to rise as we head into the rest of 2023, however, with the Fed making a statement that they are unsure of the actual ramifications of the continual increase of rates, the market should improve. I am not sure we are at our peak just yet, in 2022, but I certainly know that based on the data provided rates will remain slightly better in 2023.
Aguilar: Interest rates will continue to hover around where they have been in 2022, although I do predict that they should come down into the lows 5’s at some point in 2023. How soon that happens depends on our economy, getting inflation under control, and other political factors.
Collett: We can make educated guesses, but rates are hard to predict. The Fed just raised their federal funds rate to 3.75%–4% on Nov. 2, indicating that more rate hikes are coming. We think that this cycle of aggressive rate hikes is coming to an end soon, dependent on inflation coming down. We could see the Fed raising rates by 0.5% at their December meeting, then 0.25% in 2023, until their rate sits at 4.75%–5%. If that happens, mortgage rates could fall.
What buyers should remember is that they can “marry the home, date the rate.” In other words, find a home they love and be prepared to refinance when mortgage rates come down.
Griffin: If they rise, I don’t think they’ll increase much. They could level off between the 8%–9% mark. The question is going to be at what point will the builder be able to deliver a lower priced home because their material costs have gone down significantly. That could also trigger issues with appraisals because now you have a declining market.
What should homebuyers be watching for regarding mortgages?
Aguilar: Homebuyers should position themselves financially so that when the right home comes along, they are ready to pounce. They should not be concerned about rates as much as they should be concerned about their own personal finances which allow them the flexibility to purchase the home that fits their budget. Rates will always fluctuate, but home prices do not. Home prices continue to increase year over year, so the best advice is to put yourself in a great position financially to purchase the correct home for you and your family, regardless of rates.
When rates drop or you’ve paid off a good portion of your principal balance, refinance your home to a lower rate or shorter term that also has a lower rate. So many factors come into play economically, family situations, employment situations that can affect the time that you will live in a home, but what has always held truth is that you build equity and wealth with home ownership and there is no rate of return on renting.
Bowman: Looking for someone who provides great customer service and a few options is always best. Right now, with the rise of the 3/2/1 or 2/1 buydown and having the opportunity to take advantage of a lower rate for 2–3 years could be the most fiscally prudent thing to do. Connecting with an educated real estate agent, and not just using someone because they are your friend, will be the best leverage a buyer or seller could make in this market.
Collett: First-time homebuyers and communities that have traditionally suffered with affordability issues should keep a close eye on recent enhancements made by Fannie Mae and Freddie Mac. The current administration and Federal Housing Finance Agency (Fannie and Freddie’s regulator) have been laser-focused on opening up affordability and creating products that allow for further home ownership opportunities for this segment of the market.
Just this week, they announced that four groups will see their upfront loan fees — also called guarantee fees or “G-fees” — eliminated when using conventional loans backed by Fannie Mae or Freddie Mac. These groups include low- to median-income first-time homebuyers, buyers using the HomeReady or Home Possible loan programs, buyers using the HFA Advantage or HFA Preferred loans and single-family loans that fall under the Duty to Serve program.
Griffin: I think the focus for homebuyers isn’t so much the interest rates, but what are you comfortable with in a mortgage payment and how to get there. Homebuyers should also be aware of various programs that can help make higher monthly payments affordable.
What will be the biggest challenges and opportunities for lenders in 2023?
Griffin: I don’t see the housing market slowing up or even coming close to what we experienced during the savings and loan crisis of the 1980s or in the financial crisis in 2008 where prices were down 50%-70%. It’ll be important for loan officers to brush up on loan products and programs that can help homebuyers.
The one population that has been misunderstood is families that are on Housing Choice Vouchers. They normally don’t get a lot of help. Now, with the new push from the Houston Housing Authority, families can purchase homes in better neighborhoods ranging from $200,000 to $490,000. This is quite an opportunity.
Collett: There are several hurdles lenders will face in 2023, many of which carry over from 2022. The fluctuating rate environment continues to be a challenge for everyone, and I expect that will continue into 2023.
In addition to interest rate volatility and uncertainty around how the Fed will fight 40-year highs in inflation, lenders will still have to contend with profitability and cost control in this new, low-volume environment. We believe 2023 will be a year of consolidation for lenders, so expect a large uptick in mergers and acquisitions among lenders.
Liquidity remains an issue. The secondary market for the most part has been decimated by the enormous spike in interest rates. Falling deposit rates, lower asset prices and snail-paced runoff rates have created a major liquidity crunch that doesn’t appear to be going away anytime soon.
Different types of loan products, like ARMs and temporary buydowns, can help buyers ease into homeownership and take advantage of lower or more stable home prices without a long-term rate commitment. When rates come down, opportunities exist to lock in for the long term.
Aguilar: Lenders have to realize that the last couple of years were an anomaly. The industry will normalize itself back to pre-covid form. With the rate increases in 2022, there will be opportunities for refinances in 2023, but also there should be caution for EPOs. As a society, people will always need shelter and people will continue to purchase homes regardless of the interest rate climate. The opportunities arise in educating your clients and business partners as we see market transitions, continue to look ahead, and always, always do the right thing.
Bowman: Adaptability and aligning yourself with a company and group of people that will survive 2023 is critical. We will see 20-30% of mortgage companies either disappear or merge with other companies due to the shear margin compression. The biggest opportunity will be lenders that have created long lasting relationships within their community of people. Relationships should always be the forefront of your business.