TheMReport — News and strategies for the evolving mortgage marketplace.
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22 | M R EP O RT COVER STORY 2023 trough—but conditions will vary quite a bit from location to location. California home prices, for example, could take a 10% dip, while markets in the Southeastern states may continue to increase. This market correction is likely to be much more localized than what we saw during the 2008 market meltdown—and much less severe as well. Whether we are in it or about to be in it, there is lots of talk about a recession, but what are you seeing as far as the impacts of that on the general economy, and how that will trickle into the housing market? Kushi: You need consumer competence to make the biggest financial decision of your life, and I think we have not found a way to avoid the business cycle, so I do think a recession is probably in our future, although I will not say when or how big. Recessions come in different shapes and sizes, so it is possible we could have one and it could be very short lived. We know the pan- demic recession was very short, and the Great Recession was very long, but that recovery period was also incredibly long, so I think the impact will be a further pullback in purchase demand. One thing I am interested in is household formation because fundamentally, that is what drives both rental and purchase demand. The slowdown in rental prices is still positive, but year over year, it is starting to slow down. I think a big reason for that is that rental formation is slowing. You have roommates that, instead of "decoupling"—going out on your own and either buying a place or renting a place on your own— many are choosing to stay put because they are nervous about the state of the world. It could be their job, the labor market, the economy … whatever it may be, they are choosing to stay put with that roommate or are staying with their parents and not moving out. I think that that will result in slower rent depreciation and prevent that transition from renting to owning. I do not think that the recession will be good for the economy in the near term, but ultimately, what we find is that the housing market tends to lead economies out of recessions because rates typically start to come down, the Fed brings rates back down, and then those who do feel confident and have equity in their homes begin to transact. Housing has a big multiplier effect on the economy, so it can pull us out of that recession. What can mortgage professionals do to keep their pipeline full amid an erratic housing marketplace? Blomquist: Mortgage profes- sionals who can find and capture sellers who need to sell and are willing to adjust pricing to sell will fare the best at keeping their pipeline full over the next 12 months given that mortgage rates are not expected to drop much over that time period. Of course, mortgage professionals need to continue to curate their pool of potential buyers as well, but those motivated sellers are the oil that is needed to keep a pipeline running smoothly given these erratic hous- ing market conditions. Dr. Lautz: The housing market is always going to change. It has changed from a refinance market to a purchase market in the last six months. Look for opportuni- ties where buyers had been shut out, there now could be a chance for first-time buyers to look at the housing market with a new perspective. Sharga: It has been a difficult transition for mortgage profession- als, who went from not being able to handle the volume of requests for rate-based refinance loans, to fighting for the limited number of purchase and cash-out loans being applied for today. First, make sure you have the right products to offer. There is still a record amount of home- owner equity in the market—$29 trillion, according to Freddie Mac—and since many home- owners have opted to stay put while the market goes through its convulsions, there is likely to be interest in tapping into that equity to make home improvements (both for immediate benefits and for increasing the home's value for a sale later). Having home equity loans and HELOCs as part of your product offering should help. Many potential buyers—and even cash-out refinance candidates— might be inclined to take out an adjustable-rate loan (ARM) to save a point or so on the interest rate. Having ARM options at your disposal today could be a differentiator. Second, marketing your ser- vices has probably never been more important than it is now. Strong marketers tend to get more than their fair share of available business during highly competi- tive periods like the one we are in now. This does not require Super Bowl ads, by the way. Mining your network for referrals—and offering reciprocal referrals—is vir- tually a no-cost way to generate leads. Working on your contact database and letting your contacts know about various loan products and how they can be used should be part of your everyday activity. Leverage social media, especially consumer-facing social chan- nels like Facebook, Instagram, Snapchat, and Twitter, to keep in front of potential borrowers when they ultimately decide to explore a purchase, refinance, or home equity loan. Singer: People always need a place to live and will still buy and sell homes even in the most difficult of markets. In times like these, it is beneficial to go back to the basics and see where you can improve your everyday activities; identify gaps in your business or market; and reevaluate the tools and resources you use to boost lead generation, build new rela- tionships, and find new clients. There are undoubtedly going to be challenges ahead for mortgage professionals, real estate agents, and homebuyers and sellers in the coming year, and it will be im- "We know the pandemic recession was very short, and the Great Recession was very long, but that recovery period was also incredibly long, so I think the impact will be a further pullback in purchase demand." —Odeta Kushi, Deputy Chief Economist, First American Financial Corporation