Is the US mortgage market set to surge?

After a rocky few years for the US housing market, consumer sentiment appears to finally be on the rise – and that’s a trend that could have a significant upside on the mortgage front.

Americans’ positivity on the economy jumped to its highest level for two and a half years in January, according to polling reported by the University of Michigan, as all ages and income groups across the country logged optimism looking ahead.

That improving outlook arrived amid further evidence of the US economy’s resilience in the face of high interest rates and inflation, with the labor market continuing to surge and the Federal Reserve signaling that its rate-hiking trajectory may be nearing an end.

Mortgage rates have also posted a decline in recent weeks, slipping in mid-January to their lowest level for eight months after spiking in October.

Those falling rates are a welcome sign, according to Andrew Russell (pictured top), loan originator at the New York-based RCG Mortgage – but less significant than Americans’ increasingly bullish sentiment on the economy and mortgage outlook.

“I feel, from a rates perspective, when the rates are trending down, the more important piece is more the psychology of the consumer in America versus the actual rates going down,” Russell told Mortgage Professional America.

“It’s been great because interest rates went as high as the sevens-to-eight-percent range, and on some programs they’re [now] back into the high fives. Purchasing power goes up with that which is awesome – but I feel like it’s more the media and the psychology of ‘rates are coming down’ which then pushes people to be more incentivized versus the actual rate itself.”

Mortgage loan application volume grew 3.7% week over week, driven by an increase in refinance applications. https://t.co/fEB3O4kXG3#mortgageapplications #mortgageindustry #marketupdates #housingmarket

— Mortgage Professional America Magazine (@MPAMagazineUS) February 7, 2024

US housing and mortgage markets emerging from the doldrums

2023 was something of an annus horribilus for the US housing market, which saw sales plunge to their lowest level since 1995 as rising rates kept potential sellers in their homes and pushed would-be buyers to the sidelines.

Those sky-high rates proved an insurmountable barrier for many mortgage professionals in conversations with clients who simply saw no justification to enter the market as likely borrowing costs continued to climb.

However, Russell said green shoots were emerging for the mortgage market – and that those originators who were able to weather the recent turbulence would be well positioned to capitalize on a possible market uptick in the year ahead.

“If that happens in my business [buyers moving to the sidelines] for a certain amount of time, it’s not really ideal,” he said. “So we’re definitely turning the corner. I think that those professionals that have made it through the storm, this year moving forward, it’ll be very, very good for us.”

Is there room for optimism on the affordability front?

Still, a caveat: despite plummeting sales activity in 2023, there remains little relief for buyers on the affordability front. The median sale price actually rose year over year, according to the National Association of Realtors (NAR), inching upwards by 1% to $389,800 – and while national supply increased towards the end of the year, it remained rooted well below pre-pandemic levels.

“I don’t think it’s even hyper-focused in markets – whether it’s New York, New Jersey, Connecticut, Texas, Florida, or California, I feel like the inventory piece is certainly an issue,” Russell said.

“When a house hits the market and rates are coming down, there’s even more people [bidding] and that brings a whole craziness that I never experienced in my whole career until the pandemic, which was people offering over the list price, people waiving their appraisal, their mortgage contingency.

“You’re excited for the rates to come down, but now as a prospective homebuyer, it’s really hard to get an accepted offer.”

Purchase activity is likely to drive the US mortgage market in 2024, particularly with many homeowners having secured their mortgages at lower rates during the pandemic and seeing little need to refinance.

“Refinance has gone down exponentially [in recent times] so there’s maybe a small book of business, a small clientele group in the last 12-18 months that might refi – but otherwise, it has to be a real need for a client,” Russell said.

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