The rate of mortgage originations being made during quarter 1 of 2014 in the United States has hit a 14-year low and marks the ending of a massive refinancing boom that began in 2013. Interest rates in 2013 hit their lowest since the 2008 financial crisis, allowing for tons of underwater homeowners to finally swim up to the surface on their home loans. Now that the refinance boom is over and interest rates are higher, overall activity throughout the mortgage industry is significantly slower.
Interest rates have seemed to have repeated history as the U.S. experienced a few similarities with interest rates patterns a decade earlier. In the year 2000, interest rates in the U.S. were as high as 8%. By 2003, mortgage interest rates went down to 5% spurring many Americans to refinance their mortgages. But when it comes to mortgage interest rates, we experience the opposite of the force of gravity, and “what goes down must come up” instead of “what goes up must come down”. Low interest rates are like black Friday sales – they don’t last forever, but when they are out there everyone wants a piece of the pie, which is why borrowers snag up the low interest rates as fast as possible and the mortgage banks are laughing themselves all the way to (their own) bank. At the point that interest rates did increase from the 5% low, the purchase market should have withered away as well, similar to what we are exhibiting now. However, the sub-prime market exploded instead, and lenders were getting aggressive with finding ways for borrowers to do cash out refinances simultaneously. By 2008, interest rates were down to 3%, creating another large refinancing boom. As we all know, the bubble eventually burst, leaving behind an extremely fragile economy and an unsteady housing market.
The mortgage market is now experiencing a shift from “bull interest rate” refinances to a purchase market. Interest rates are slowly on the rise, which has caused the refinance market that was huge in 2013 to be at a point which refinancing has almost completely dropped off. At least we can rest easy that the purchase market is meant to slow at the end of a refinancing boom, and it is not currently being inflated by aggressive and irresponsible lending practices anymore. Our next concern is that homes for sale out are overpriced, causing a push back from buyers. It is much harder for the mortgage industry to pick up as much traction as they need to complete home sales with these sometimes exaggerated. As you can see, there is never a dull moment in the mortgage industry.
Wells Fargo and J.P Morgan, the nation’s two largest mortgage lenders, have already seen a significant hit in their earnings which are down 68% from a year ago, and have dropped 28% since just the last quarter as reported by the Wall Street Journals’ Nick Timiraos. The Wall Street Journal also detailed market share for the top 25 banks in the nation, which fell to its lowest in 14 years. Big bank market share stood as 91% in 2008, and is now 64% as the big banks have been dealing with numerous contingencies, paying immense settlements, and dealing with the defaults that have resulted from their own reckless lending practices, creating a huge set back among these banks nationwide. The top 25 are now keeping their distance. Currently, smaller lenders are picking up the market share that the smaller banks were forced to let go of.
Since the potential buyers are more timid about purchasing or refinancing due to higher interest rates and higher priced homes on the market, it is in the hands of real estate agents and lenders to educate and approach potential buyers about strategies that are aligned with the goals of home buyers. For example, many homebuyers are unaware of California’s down payment assistance programs, and also the credit profile that is necessary to purchase a home. With synergies on the behalf of lenders, real estate agents, and homebuilders, everyone can work together to boost a lagging housing market, and stop having American citizens blow their money on rent.
If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany.firstname.lastname@example.org. If you would like a quick preapproval Click Here, and for assistance with down payment or buyer assistance Click Here. You are also always free to give us a call Toll Free (855) 692-7623. “Mortgage Lending Drops to 14-Year Low.” Video. Wall Street Journal, 25 Apr. 2014.