Last year, when the deputy chief economist and vice president of research at the National Association of Realtors, Jessica Lautz, testified before members of Congress, she stated that in 2023, the annual number of existing home sales was the lowest recorded since 1995. She also explained that the recent rise in home prices was due to a lack of inventory that pushed more potential buyers out of the market.
That ongoing low housing inventory suggests the real estate market in 2025 will continue to challenge both homebuyers and mortgage originators. Even after a drop in interest rates last fall, it will likely take time for the impact of those rate cuts to loosen up today’s tight housing inventory.
There is some good news, however. By partnering directly with homebuilders, both consumers and mortgage companies have the ability to access housing without engaging in the ever-escalating bidding wars that are so common with existing home sales. Those bidding wars have helped drive up prices to a level that has scared buyers out of the market and diminished opportunities for mortgage providers.
Sluggish market
In recent years, high interest rates have received a lot of attention as the cause of a slow real estate market. Many prospective homebuyers felt priced out of the market due to unaffordable mortgages.
But even as rates started coming down, the market has remained sluggish due to the low inventory of existing homes currently on the market. That low inventory has led to feverish bidding on the homes that become available, which has made it extremely difficult for first-time buyers — who often have fewer resources — to enter the market. Unfortunately, it looks like that low inventory will be here for a while.
There are 30 renter households in America for each available existing home that goes up for sale, according to Freddie Mac’s latest market outlook report. In 2006, there were fewer than 10 renter households for each existing home for sale.
Bidding wars
From 2000 until the onset of the COVID-19 pandemic, about one in 10 homes on the market were newly built; today that number is closer to one in every three. As many homeowners opt to stay in their current homes and take advantage of the low interest rates secured years ago, homebuilders have been increasing production to combat the housing shortage.
As that stock of new homes grows, it offers both consumers and mortgage companies — who are desperate for new market opportunities — a viable pathway for getting into the market without getting entangled in bidding wars. In fact, more first-time homebuyers are now considering working directly with new homebuilders.
It’s an option capable of delivering real incentives for homebuyers, such as decreased out-of-pocket expenses and lower mortgage rates. It can also provide tangible benefits for mortgage originators.
Symbiotic relationship
There’s already a mutually beneficial, symbiotic relationship between homebuilders and mortgage providers. One of the primary benefits of that relationship for homebuilders is that working directly with a mortgage provider can ameliorate risk.
Homebuilding is a capital-intensive endeavor, and once a home is completed, the carry costs can be substantial. The sooner the builder can get paid for that house, the better.
Mortgage companies already have lists of qualified clients looking for houses, and by partnering with a mortgage company, builders can benefit from on-time closings and fewer surprises due to financing issues. Having a strong working relationship with the same lender can provide a measure of consistency and predictability for builders as they look for ways to quickly recoup their initial investment.
Similarly, established builders have their own lists of clients looking to buy newly built homes, and those lists can deliver a fairly steady stream of prospective clients for lenders. Mortgage companies that offer a broad range of loan products, competitive financing and exceptional service can generate high capture rates by accessing those builder prospects.
Typically, a mortgage company may only know what their future client pipeline looks like 30 to 45 days out. Access to builder client lists can provide lenders with a more extended potential client pipeline and the ability to build strong relationships with new homebuyers during the time a home is being constructed.
Reliable closings
Licensed mortgage providers have a fiduciary responsibility to the homebuyer. It’s the lender’s job — and in their long-term best interest — to offer loans with the best features and rates for each client.
Lenders who have established relationships with builders can offer homebuyers more accurate and reliable information around topics like home prices, builder incentives, title expenses, taxes and fees. That leads to more accurate loan estimates and gives homebuyers more peace of mind that they received the best deal available.
Having more accurate information also helps simplify the homebuyer’s to-do list around closing dates, scheduling movers, providing notice on their current leases and the myriad other details associated with home buying. Additionally, some homebuilders have a preferred lender list
Homebuyers often report higher satisfaction with the lenders on those lists because they can sometimes offer incentives, such as covering closing costs and lower interest rates. Even in situations where a homebuyer is pre-approved with a particular lender, it can be beneficial to at least investigate the builder’s preferred lender and compare offers.
Foreseeable future
The inventory of existing homes available to lenders and homebuyers is going to remain tight for some time. While there are signs that tightness is loosening a bit, the supply of existing housing is nowhere close to meeting the demand. The hurdles to entering that market that many lenders and consumers have faced in recent years will remain for the near term.
The inventory of newly built homes is growing, however. By partnering directly with homebuilders, lenders and homebuyers have a very viable option for accessing homes, even in a difficult market.
More importantly, this approach also offers an array of potential incentives and benefits for both parties. From more accurate information on home prices to lower expenses to deeper client pipeline lists, there are a host of reasons why partnering directly with homebuilders are an option many lenders and consumers should seriously explore.
