TheMReport — News and strategies for the evolving mortgage marketplace.
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26 | M R EP O RT COVER STORY What is the biggest component of the housing market that needs correcting in order to get things on the path to rebalance? Blomquist: Sellers adjusting pricing expectations and taking what the market will give them in terms of price. Dr. Deitz: Somewhat lower inter- est rates will help bring balance to the marketplace. The era of rates in the 3% range is likely over for some time, but rates moving below 6% would help stoke hous- ing demand. On the supply side, we need policies that will help reduce the cost of construction and reduce ineffective regulations. Hale: Without a doubt, afford- ability is the biggest challenge to the housing market, but afford- ability itself can be remedied in one of several ways. In Realtor. com's forecast report, we discuss the trifecta of budget barriers in mortgage rates, home prices, and incomes. Adjustment in any of these three key variables will help put housing on a path to better balance. Fortunately, with a still-robust labor market, we expect income growth to continue. In the early part of the year, we expect mortgage rates to climb, but toward the second half of the year, we may see them dip back down, which will help. And finally, while home prices are expected to keep advancing on a year-over-year basis; the gains have slowed dramatically. That is a step in the right direction for potential buyers. Additional construction is needed to help alleviate the long- term housing shortage that the market continues to grapple with. This shortage has prevented more drastic adjustments in price, even in the face of short-term weakness in housing demand. But in the longer run, the market will work better for everyone if housing is not in such short supply. Dr. Lautz: The housing market needs more affordable housing inventory. Rates have moderated in the last three weeks to under 7%, but buyers need affordable in- ventory to be able to make moves in the market. Sharga: In the short term, mortgage rates need to drop back down into the 5% range, and home price appreciation needs to continue to slow down—or even decline modestly in some mar- kets—while wages rise so that af- fordability is less of a problem. In the long run, the market simply needs more inventory—a lot more inventory—to correct the imbal- ance between supply and demand that helped fuel the home sales boom of the last few years. Much of this will need to come from homebuilders increasing produc- tion volume, but it is important to acknowledge that the inventory of existing homes for sale is also his- torically low. Boomers who have been aging in place are part of the issue here and will gradually begin to "age out" of those homes, bringing some much-needed inventory to market. With consumer confidence at an all-time low, what can industry players do to inject renewed interest in buying a home? Dr. Deitz: The industry needs to highlight the long-term benefits of homeownership, including wealth accumulation. Builders are focused on a rebound in the market in 2024. Hale: Even when market con- ditions are not ideal, it can be a good time for some households to make a move. I think focusing on the unique needs and wants of your potential sellers and buyers will help you guide them to the decision that is right for them, which will ultimately serve them and you best in the long run. Some key audiences who might find the market a little more palatable now are those who have ample home equity or cash to use to facilitate a transaction. High mortgage rates should not impact their calculus, and the fact that competition is lower may be something that they can benefit from. What role will technology play in the housing space as we move forward? Rood: I believe people will prioritize technologies with low implementation costs and rapid ROIs, versus massive system overhauls (limited bandwidth and capacity to take on the spend). It would reason that institutions will look more for third-party solutions, where possible, versus continuing expensive internal build projects. Service providers are likely to continue ramping up technology-enabled solutions to assist mortgage companies with operating capacity, efficiencies, and adopting a more variable cost business model to focus on re- turns on marketing versus returns on investments. We also believe that the cus- tomers/originators are looking for uniformity in the process from one lender to the next. Common vendor-managed portals delivering loans with process efficiencies for originators to lenders will achieve this goal in 2023. These new Universal Delivery Portals (UDPs) will allow all users to remain on their legacy systems while connecting to current and new customers with state-of-the-art technology and workflow. These new UDPs will reinvent the land- scape in 2023. Singer: The pandemic helped accelerate the rate of tech adop- tion in the real estate industry, but buying and selling a home remains a complex and frag- mented process. Some aspects have moved online—like home search, online lending approvals, and digital closings—but we need solutions that streamline the process across the home buying and selling journey and help solve persistent pain points to make it easier and more transparent. Technology can help us do that, and we believe this trend toward a more seamless translation will only continue. After Zillow shuttered its iBuyer division last year, and the recent news that Redfin was winding down its RedfinNow iBuyer division, what does the future hold for the iBuyer market? Is there time for it to be resurrected or has this market met its demise? Singer: iBuying appeals to a certain subset of homeowners looking to sell their properties, and we believe there is a place for it among the various innovative new options for homeowners looking to sell. The companies that do it well, with sustainable models, will thrive, so it is up to the market to determine who ultimately succeeds in iBuying. At Realtor.com, rather than trying to do it ourselves, we are taking an open marketplace approach and have built relationships with com- panies that offer myriad selling options to give homeowners op- tions and find the right choice for their needs—including listing on the open market with an agent. What needs to happen for buyers to grow confident in listing their homes once again, and to help rebuild the sellers' market? Blomquist: Time, combined with a more stable mortgage rate environment, will help convince more homeowners to list their homes for sale, and to adjust their pricing expectations when doing so. Even if mortgage rates do not decline significantly, if they remain relatively stable for a few months that will help give sellers the confidence to list. More stable mortgage rates will restore some certainty and predictability to the market so that sellers can know what to expect when they sell and also what to expect if and when they become buyers again after that sale. Dr. Deitz: Positive inflation data, and sustainable declines in the rate of inflation so the Fed can ease, need to occur to grow con-