This is going to make some folks nervous. The few who are left in the mortgage industry may want to polish up their resumes and maybe take some classes.
Real estate is still smoking hot, especially in the Bay Area. So you would think that those of us in the real estate industry are doing very well, wouldn’t you?
Au contraire. According to Realtor Extraordinaire Cassie Maas (I’m working all my high school French in – it was bound to come in handy one day), on January 1 there were only 570 listings in Santa Clara County, compared to a “normal” of 2,000 to 3,000. There are 579,329 housing units in the county, so that means less than…subtract that, take away this, divide into…well, it means there are almost no listings.
Buyers are getting a little discouraged, understandably, and December is typically a month where few families do a lot of serious home shopping anyway. So you would expect new loan applications for home buyers to have dropped in December. You would be right.
According to the Mortgage Bankers Association purchase applications for the entire U.S. were down dramatically in late December, down 27% from late November / early December. Take a look at the graph to the right. Using 100 as a benchmark for applications in 1990, you can see the total number of applications leveled off in 2010 as the financial crisis started coming under control, and has been fairly steady since then. But that means that raw applications are about the same as they were in 1997, when there were about 25% fewer homes in the United States.
So at least we have refinance activity, right? Well, it seems that most folks who could refinance during the super-low interest rates of the last few years have done so. Those that could not – because of employment, income, credit or value issues – have been catching up in the last year. After a short-term peak in 2013 when rates hit their historic lows, applications dropped dramatically, and held fairly steady throughout late 2013 through late 2015.
But look at the chart to the left, and you’ll see a dramatic downward trend in late 2015, resulting in December refinance applications lower than any time since late 2008 at the beginning of the financial meltdown.
There are a number of factors that might help mitigate some worry in the industry.
- The big banks are losing market share to small, independent mortgage companies (yay!) so most of the entrepreneurial mom-and-pop shops are doing OK.
- Also, remember that not all applications turn into revenue. If we don’t close them we don’t get paid. In addition, average loan amounts have risen in the last few years and the revenue per loan tends to track loan amounts, so revenue per loan is rising. Fewer applications, therefore might mean less activity, but may not necessarily mean less revenue overall, if the quality of applications rises and / or loan amounts rise
- New regulations that kicked in in October of last year have dramatically increased the amount of work and time required to complete each loan. Eventually when we (as an industry) become accustomed to the new forms and processes I believe it will actually require less work than before to complete your loan, but for now the jobs of processing personnel are probably safe.
Still, when you consider that these graphs are charting absolute numbers of applications the implications are a little scary (at least for those of us in the real estate industry.)
It is possible that the typical homeowner is settling in, keeping their home a lot longer than they used to, keeping their ultra-low 30-year fixed rate mortgages forever, and – in California – staying in their home to take advantage of the low property taxes afforded by Proposition 13.
In closing, while my own personal business volume remained fairly steady in 2015 and seems to be starting the new year well, (thank you!) referrals are always appreciated. We may all be fighting over a smaller pie this year.
The good news is that rates will probably stay down, and low mortgage volume will only help that cause.
If you’ve been sitting on the fence, let’s talk!