Mortgage Lending Trends 2020
By far, the biggest purchase in a member’s financial journey will be home buying. Mortgages and home loans make up the largest lending market in the U.S., with over 9 billion dollars in debt. Home buying is often considered a stepping stone in the progression of life, and a natural move for families and long-term renters to transition to permanent residence. Why rent when you can own?
In the U.S., we often come across high living cost-to-wage ratios, and the debate between renting and purchasing may arise. According to ATTOM Data Solutions, 53 percent of U.S. counties have lower mortgage rates than rental rates, “however, the analysis shows a split between different-sized markets, with ownership more affordable mainly in lightly populated counties, and renting more affordable in more populous suburban or urban areas.” ATTOM also noted that the price of the housing markets on average was rising faster than wages and rent prices.
In recent months we have seen many changes in the economy and the world, which has made it hard to predict the future in home buying, as well as most things. In such uncertain times, it can require added due diligence to be aware of possible risks when making investments at the level of purchasing a new house.
The first quarter of 2020 had a record number of mortgage rate locks at unprecedented levels. As the second quarter started with the pandemic, it did not damage this trend. The stimulus package from the federal government and other changes made to assist those in need helped create some stability for many, which is why mortgage lending has continued to grow. One of the leading causes of such high numbers of mortgages stems from the incredibly low mortgage rates available. With the global uncertainty before 2020 along with the events of the past months, we can be sure that the rates won’t have any motivation to increase anytime soon. It was only a year ago where we saw a steady U.S. labor market of the lowest levels of unemployment since the 1970s that prompted some calls for a gradual rate increase. Things have dramatically changed since then. This will more than likely motivate the interest rates to remain low for some time to come.
We have also seen other trends, such as high rent prices leading people to take the risk and purchase a home to help them invest their money instead of giving it to another person to pay their mortgages. This has led to a major increase in first-time home buying. Most first-time homebuyers will run into some issues while taking the step to homeownership.
A big trend is happening in the inventory shortage for entry-level homes, as well as the unaffordability of many market homes. According to Nerdwallet, Baby Boomers won’t move, landlords won’t sell, owners are hooked on low mortgage rates, builders ignore entry-level buyers, regulations add costs, and owners want to restrict supply. This causes housing market trends to shift and prices to rise, keeping renters.
This brings in the affordability of homes and the scarcity of those homes. Average and median-priced homes have become rarer, while pricier homes above 500k dollars are more abundant. This puts first-time homebuyers at a disadvantage for a first home purchase.
Mortgage lending interest rates saw a drop in the latter half of 2019 and seem to be steady at the beginning of 2020, which should bring in a stronger housing market. With many digital lending options growing in the home-buying market, banks and credit unions are stepping up with digital applications that afford similar transparency and convenience to the member and the institution.
Mortgage lending is a commanding percentage of loan income for any financial institution, and to keep up with the innovative lending competition, F.I.s need to consider the convenience and to simplify the application process for members. Growing technology and digital application formats can bring lending to all internet-connected devices!
Oak Tree can offer digital formats for all of your credit union’s home lending needs. Browse our lending products and jump into the housing market today! https://www.oaktreebiz.com/products-services/all-products-services
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