TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1463706
16 | M R EP O RT FEATURE A fter more than two years of a pandemic-inspired hous- ing boom, the housing market is quickly shifting amid rising interest rates, higher home values, and a lower threat from COVID-19. In March 2020, the housing market took an unexpected turn as the realities of the COVID-19 pandemic set in. States and cities began to issue stay-at-home orders and interest rates plummeted. Throughout the pandemic, it was a tale of two worlds as many homeowners, now without a job, filed for mortgage forbearance in order to avoid foreclosure. Others, however, had the ability to work from home and observed plum- meting mortgage interest rates. This created a surge of mortgage loan activity with existing homeown- ers eager to refinance or flip into new homes and new homeowners searching for their perfect home. According to the Mortgage Bankers Association's (MBA) March 9, 2022 Mortgage Application Report, refinances rebounded slightly by 9% week over week in response to a slight rate drop; however, refinance activity has plummeted 50% year over year. Forecasts project further interest rate increases and a resulting refinance activity decrease—effectively ending the refinance boom. With this year's change in the housing market, a new trend is likely to arise: home equity loans. In fact, below are five reasons home equity loan products that allow you to borrow against the equity in your home are likely to make a big comeback in 2022. 1. Spread of COVID- 19 Slows in the U.S. O ver the past two years, the housing market became nearly impossible to anticipate as the COVID-19 pandemic became one of the most influential and unpredictable economic variables. New COVID-19 variants and even the government's response to rising COVID-19 cases and deaths became a top risk factor. For economists, the pandemic was anything but boring. It became one of the greatest chal- lenges to forecasting and remains one of the most important statistics for business leaders to follow. COVID-19 cases, hospital- izations, and death rates will have a greater impact on the economy than anything else. While a new variant or risk could arise, for now, the United States is trending toward fewer cases, fewer hospitalizations, and fewer deaths, allowing many Americans to start heading back to normal life. At the end of February, the Center for Disease Control (CDC) announced that most Americans can stop wearing a face mask. As economic risks from COVID-19 continue to fade, the Federal Reserve will become less concerned about pandemic- related economic volatility and more concerned about controlling inflation rates. Accordingly, as the Fed has indicated, they intend to increase interest rates throughout the course of the year. 2. Interest Rates Begin to Ascend M ortgage interest rates have already begun to rise, moving from less than 3% at the end of 2020 to hovering around 4% in late February to early March of 2022. Rates will likely continue to increase throughout 2022 as the Federal Reserve takes more aggressive actions, by raising short-term interest rates to combat rising inflation levels. The Federal Open Market Committee (FOMC) also raised rates again at their meeting in March, citing inflation as well as uncertainties surrounding the Russian invasion of Ukraine. The Fed could raise rates by about one percentage point in 2022 and two to three additional percentage points in 2023. The result of these hikes to the federal funds rate will send mortgage rates soaring, ending 2023 in the 5.5% to 6% range. With interest rates headed higher, fewer homeowners will be able to lower their monthly payment through a mortgage refinance. When mortgage rates reached nearly 4%, according to data from Freddie Mac, Black Knight sent out a report showing that just 3.8 million homeowners would benefit from a refinance. This is down from the 11 million who could benefit at the begin- ning of 2022, and down from 20 million in 2020. 5 Reasons Home Equity Loans Are Coming Back From pandemic pressures to supply chain challenges, homeowners are looking to access their homes' equity. By Dan Bailey