2023: Year in Review

The Challenges of Homeownership and the Mortgage Divide

The adage goes: “Nothing is certain except death and taxes. In middle class America, which makes up most of our population, we can add ‘mortgage payments’ to the list. An unavoidable aspect of homeownership, but for some more painful than others.

As of 2023, the idea of homeownership is already far-fetched for millions of once-optimistic first-time buyers, inching farther away as the interest rates reached decade-highs. The reality is that because of incredibly low rates during the pandemic, there was a buying frenzy and a lot of pent-up demand that, three years on, still hasn’t been satisfied. In fact, despite the recent cooling off and decrease in interest rates as of mid-December (30-year mortgage drop to its lowest level in four months), the housing shortage coupled with sky-high home prices and inability to make down payments has already played its role in slowing down homeownership and the market in general.

Rising mortgage rates through 2023 also led to a clear bifurcation in the mortgage market. Existing homeowners, most of whom have the industry standard 30-year fixed mortgage and bought their houses years prior, had the advantage of making fixed payments at a lower rate than the current 7%, while first-time buyers were faced with high prices and historically high rates.

Despite the current drop in interest rates, numerous first-time buyers continue to face challenges in making the 2-4% down payment. On the other hand, existing homeowners, who hesitated throughout the year, are now contemplating both refinancing and selling as rates decline.

The Lenders’ Perspective

But let’s look at the other side for a moment – the lender’s perspective. As a mortgage lender, the costs associated with lead generation and mortgage origination are almost doubling, especially given the recent FICO decision to raise the cost of mortgage credit score checks for all lenders in 2024. In addition, a soft credit report will cost as much as a full report in 2024, raising the cost per credit report by $2.50 - $3, an increase of roughly 400% across all tiers. Without diving into specifics about FICO’s tier-based pricing structure for mortgage lenders, which has now been canceled, it’s safe to say that lenders of all sizes are soon to be faced with the prospect of more money out of their pockets.

While it’s easy to say that, as always, the resulting cost burden will be borne by the borrowers – it is important to note that lenders are also struggling to stay profitable and will continue to feel the pinch as the changes come into effect. Further, when we account for the dearth of homes available on the market, rising interest rates and home prices, and a general unwillingness to borrow at these rates, it seems that neither lender nor borrowers are winners in this market that appears to be at a stand-still.

Recent Data

It would be surprising then, to know, that in a recent Fannie Mae Housing Purchase Sentiment Index October Survey, while 85% of respondents said it was a bad time to buy a house, 63% of respondents thought it was a good time to sell. This suggests that the reality is not black or white, but in fact, influenced by weary potential homeowners, who are waiting for a better time to buy, or considering other options.

Interestingly, a recent Bank of America survey suggests that for potential homeowners, home prices and high interest rates are not enough to sway them in their decision. They are considering other personal factors much more seriously such as financial preparedness and awareness, and overall readiness.

Future Market Outlook

Looking towards 2024, the cost associated with mortgage origination per loan is higher than ever for an IMB, with increased spending on soft and credit checks. Additionally, there is a surge in expenditures on online lead generation services from providers such as Zillow and Bankrate.

This paradigm shift is underscored by the impact of technology and digital innovation. In the dynamic landscape of digitized mortgage leads, encompassing both paid and organic approaches, and the growing influence of AI in marketing—. the rising costs for leads serve as a pivotal signal for mortgage companies.

When considering paid mortgage leads through such providers, both exclusive and non-exclusive leads come with their own risks, with the inability to convert the lead being the most obvious challenge. Given the increasingly wary and cautious customer base that mortgage companies are faced with, there is a higher likelihood that a customer chooses another lender after considering other factors.

For the mortgage industry, these are signs of the times, illustrating a reality where increasing customer awareness and considerations such as financial readiness dictate the need for nurturing leads throughout the mortgage origination cycle. A growing consensus among experts suggest that a notable shift is emerging, urging mortgage lenders to view the customer journey as a cohesive process that encompasses lead generation, conversion, loan applications, mortgage servicing, and payments as a seamless continuum. This necessitates a strategic shift, urging these companies to prioritize the cultivation of organic brand value through a blend of SEO, paid marketing initiatives, and targeted advertising.

Beyond the allure of competitive rates, there lies an opportunity to utilize technology for nurturing enduring client relationships grounded in value. This calls for an integrated approach where mortgage companies position themselves not merely as providers of financial solutions but as enduring partners in the intricate journey of homeownership. The industry's future success lies in recognizing and navigating this evolving terrain with a holistic and customer-centric approach.

To learn how Synergi will be innovating at the forefront of this evolution, schedule some time with our team.