In the current mortgage landscape, potential homebuyers find themselves having more questions on the state of the housing market and where it’s headed. Inflation, a regional banking crisis, fluctuating mortgage rates and Federal Reserve rate increases all contribute to this sense of apprehension.
Despite these challenges, people should keep an optimistic outlook on market trends. Home prices have trended downward but remain stable and there has been some necessary cooling in the markets that overheated in the past few years.
With pent-up demand and low supply, a homebuying surge could occur once rates return to the 5% range. Now is the time to equip borrowers with negotiating power before competition rises again. To do so, you need to connect with today’s buyer.
First-time homebuyers, predominantly tech-native millennials entering their 30s, can access more information than ever. They’re the first generation to have grown up with digital technology that’s revolutionized and streamlined the homebuying process.
Despite this, 92% of millennials report that inflation has held them back from homeownership. The reality is they simply don’t understand the options available to them in the current market. One way to help them get more comfortable is by leveraging the very technology with which they’re familiar.
A study from the National Association of Realtors (NAR) found that 76% of all homebuyers found their home on a mobile device. By harnessing digital tools for everything from mortgage calculators to virtual tours, you can help demystify the process to make potential buyers more comfortable and confident throughout the transaction.
Additionally, financial education is key. Seventy-five percent of adults surveyed by the National Foundation for Credit Counseling said they would benefit from asking an expert some of their financial questions. As a mortgage professional, you can help fill the gap by providing clear, accurate and reliable information on everything from the impact of credit scores on mortgage lending options to how inflation affects home prices.
Here’s the reality — the economic situation has led to a unique opportunity for buyers. As of first-quarter 2023, home prices in 95% of U.S. metro areas had dropped since their spring 2022 peak. This opens up the possibility for negotiation, which would’ve been unthinkable in the seller’s market of the past few years.
This is where seller contributions can make a difference. Mortgage professionals can help buyers understand and negotiate these contributions, including a 2-1 buydown (which has a lower interest rate for the first two years before rising to the full permanent rate in the third year) and concessions like home warranty plans or closing cost assistance. The seller can cover between 3% and 9% of closing costs, depending on the loan type or the size of the downpayment.
Most of all, mortgage originators have to help buyers overcome the fear factor. Many millennials worry about overpaying, but these fears are more of a perception than a reality. Only 36% of homebuyers surveyed by Fannie Mae in Q1 2022 tried to negotiate their mortgage rate. They’ve been gripped by fear and are missing out on opportunities. By sharing facts, offering real solutions and giving clients the confidence to negotiate, originators can ensure they aren’t passive participants while buying a home.
Undoubtedly, the ability to offer creative lending options is a critical factor in connecting with today’s homebuyers. NAR reported that first-time buyers made up only 26% of the market in 2022, down 8 percentage points from 2021. As a lending professional, you need to be an expert in your field. This means that catering to the specific needs of this group isn’t only important for good service but also to the survival of your business.
Innovative lending programs, including downpayment assistance programs and loans explicitly designed for self-employed or gig economy workers (like bank-statement loans), can unlock homeownership for people who might otherwise struggle to get a traditional mortgage. Independent contractors make up 15% of all workers, according to a recent paper from the W.E. Upjohn Institute for Employment Research.
Cash programs are especially attractive in a competitive market, given the advantages they offer to both buyers and sellers. All-cash buyers paid up to 11% less for their homes than people who used a mortgage, according to research from the University of California at San Diego. As the study shows, cash buyers can reap substantial savings on their home purchases, but not all buyers are able to make a cash offer. This means you have to provide a broad array of options to make sure you’re meeting the diverse needs of homebuyers.
Investments in technology are also essential for adapting loan offerings to today’s buyers. About 40% of surveyed customers were willing to complete the entire lending process via self-service digital tools, but the highest levels of satisfaction were recorded when digital channels were combined with personal service, according to J.D. Power. This reaffirms that while the industry needs to use digital tools throughout the process, mortgage professionals can’t lose sight of the human touch that clients crave.
In a mortgage environment that’s rapidly evolving, keeping up with change means not only understanding what’s happening now but anticipating future trends. While clients are increasingly comfortable with an end-to-end digital mortgage process and enjoy how technology streamlines and simplifies each step, the human touch — your ability to offer personalized guidance and reassurance — makes the difference.
Staying current also means continually expanding your knowledge. Everything from global economic trends to local zoning laws influence the real estate market. Mortgage originators need to be able to provide their clients with a well-rounded view of the market and how these factors could impact homeownership goals.
Adapting to these changes includes keeping an eye on regulatory shifts. For example, the Consumer Financial Protection Bureau has indicated a heightened focus on fair lending practices. Understanding these regulations is vital to providing valuable and compliant advice to clients.
Finally, mortgage originators must remember that today’s homebuyer is more diverse than ever. The Urban Institute forecasts that 70% of new homeowners will be Hispanic by 2040. This diversity requires understanding unique cultural needs and expectations while offering services in ways that respect and meet these needs.
No matter what happens in the coming years, the core of this work remains the same: to guide your clients through one of the most significant decisions of their lives. By embracing change — in technology, consumer attitudes, market dynamics, loan options and more — you’re not just reacting to the new mortgage landscape but helping to shape it. This adaptability and foresight will enable mortgage professionals to turn the challenges of today’s mortgage industry into the successes of tomorrow. ●