2019 has been an interesting year for the housing market in the United States. From lower rates to rising home prices and different government policies, the housing market has been surprising and sometimes intimidating. However, with all these shocking activities, there are still new things happening in the mortgage market. Let’s discuss some of the interesting and intimidating things that are piquing interest and those we are expecting.
What’s New in the Industry
Home prices continue to go up while affordability continues to be a concern
By the end of 2018, many industry experts forecasted that the price of homes will continue to go north in 2019, but the increase will be a bit slow. Based on the statistics we’ve seen so far, they were right.
In the first half of 2019, the price of homes increased but they are still lower than in the same months in previous years. For example, the year-over-year (YOY) prices of home increases but the increments were less than 4% while the YOY prices of home in 2018 for the same months were more than 4.5%.
Alternatively, the rise in home prices is affecting homebuyers. Although the growth pace is slow, home affordability for buyers continues to be a concern. For example, 67% of homes built in April 2018 are sold for less than $400,000 while in April 2019, the numbers have been reduced to 64%.
The competition had caused lenders to eased their standards a little
Another trend that is currently piquing interest is mortgage lenders easing their lending standards. After the 2008 housing crises, mortgage lenders were required to run a background check on every borrower to know if they can pay back loans. This restructuring, however, increased the lending standard and makes it harder to get a mortgage.
Recently, we discovered that most lending firms have now changed their rules thereby making it easier to get a loan. For instance, Ellie Mae shows that the average credit score for a purchase loan as at this April was 753, while in 2018, it was 752.
The rates’ downtrend is making refinancing a better option for many homeowners
Conversely to what Fannie Mae and Freddie Mac predicted late last year, the rates moved downward. This has been good news for homebuyers—and specifically for homeowners. Instead of buying a new home, refinancing is the most financially viable option for existing homeowners while better rates mean that new buyers have reduced costs when buying homes.
Privatization of Freddie Mac and Fannie Mae
Early September, the US Treasury released a reform plan for housing finance. This reform plan is centered on ways to return Freddie Mac and Fannie Mae to Private ownership. This reiterates what president Donald Trump said about it sometimes in march this year.
Fannie Mae and Freddie Mac were turned to a government-sponsored firm when the government step in and rescue them from failing after the financial crises. Although the plan emphasized privatizing the firm, there is still provision for homebuyers’ access to housing finance, and a 30-year, fixed-rate mortgage.
Autonomous Lending Process using Artificial Intelligence and Machine Learning
Artificial Intelligence (AI) and Machine Learning (ML) has been at the forefront of all industry. It is the most talked-about technology advancement in all businesses. However, the mortgage industry is not left out of all these. Although the most financial institution [fintech startups] have integrated this digital technology in carrying out some home financing processes, we are still optimistic about its full integration into the system. We are still looking for a time when computer application will be able to autonomously perform lending operation like risk assessments, identify problems and assessing using data without errors.
Full and Reliable Data Sharing among different firms
The mortgage industry is one of the most delicate institutions in the business world. Protection of user data is always placed before anything else. This, however, makes it hard for companies to share user’s data among themselves which in-turn makes the know-your-customer (KYC) processes rigorous, repetitive and sometimes boring to most customers.
Blockchain seems to be the solution to the privacy problem. Researchers are working on its use case and based on statistics, we are very close to getting there. Blockchain can be used to protect users’ data and prevent a data breach.