TheMReport — News and strategies for the evolving mortgage marketplace.
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18 | M R EP O RT FEATURE Getting Ahead of the Cycle Invest in automation now, before the next real estate bust. By Christopher Hussain I n mid-November, the New York Times asked in a headline, "Will Real Estate Ever Be Normal Again?" 1 Home prices continue to soar in cities around the United States, and despite a record rise in the Consumer Price Index in October 2 and reports of goods 3 and employee 4 shortages nationwide, the U.S. Federal Reserve Bank has signaled it will keep the benchmark interest rate low to support the still young economic recovery 5 . However, the economy may force the bank to act much sooner. If inflation is transitory, the Fed might be able to continue its near-zero interest rate policy, which will support current trends, but we don't know that inflation will fade. Tabling the conversation about rates being linked to inflation, there are other factors that may con- tribute to a continuation, or delay, in relation to our current housing bubble (let's not pretend we're not in a bubble). A projected COVID-19 baby boom 6 could keep families on the move, looking for more and better places to live. However, if commodity prices remain high and the Fed raises rates sooner than most expect, the party could end in a hurry. 7 We all have our opinions about what will happen. The market has the final say. While the timing is unknown, a residential real estate market correction looms. Lower home prices and higher interest rates will reduce the volume of new purchase loans and refinances, forcing the in- dustry to contract. Loan processors and underwrit- ers will be particularly hard hit. If history repeats, mortgage lenders and brokers will invest in sales and marketing to keep volume up, ignoring the need for investment in loan processing and under- writing operations in advance of the next upturn. Looking beyond the looming downturn, as the mortgage originations sector recovers and begins another cycle, the industry will struggle to keep up with growing demand from a new set of lower rates and/or increasing home prices. The homebuy- er's experience will suffer as closing times lengthen and stress mounts, as we saw when rates bottomed, and loan applications spiked during the pandemic. This is an outcome that lenders and brokers should have seen coming, given previous experience. As the originator of more than $2 billion in resi- dential real estate loans across all 50 states during the 2010-11 recovery in U.S. real estate markets 8 , I've felt these acute pain points, deal by deal. Real Estate Is Slow to Change T he mortgage industry is slow to change and resistant to disruption. The way we shop for clothes, furniture, and food is radically different from the standard practices a decade or two ago. Imagine yourself in 2003, choosing your groceries on your phone and setting up a delivery time. In those days, you probably still carried around a plas- tic card granting you the right to rent DVDs from a physical store on your way home from work.