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Mortgage Industry Outlook for the Second Half 2022

Mortgage rates are on the rise, housing inventory is low, and housing affordability is down again. The good news it that due to the low turnout of homebuyers home sellers are deciding to slash their home listing prices. Latest data shows that almost 20% of listing prices had been slashed recently but could this affect the interest of homebuyers?

What was shocking that adds up to all this uncertainty in the housing market is the fact that US inflation reached its 40-year high this May. It is not at 8.3 percent, something which economists are not expecting, not even the Federal Reserve.

Eric Stein, chief investment officer for fixed income at Eaton Vance sees the latest uptick as beyond the phenomenon exclusive to sectors most affected by pandemic-related disruptions. Right now it is affecting all sectors.

“This moves the balance of risks to more concern about inflation going forward,” he added.

Outlook on Housing Affordability

We have yet to see the implementation of the Biden administration’s plan to increase the affordable housing supply. The Executive Branch’s Housing Supply Action Plan will include legislative and administrative steps to address the country’s inventory shortfall in five years. The first step, per the release, will be the “creation and preservation of hundreds of thousands of affordable housing in the next three years.”

Another barrier the new plan seeks to address is the shortage and increased cost of both building materials and labor that has hampered residential construction. To that end, administration officials will meet with representatives from the building industry to explore additional actions that both the government and private sector can take to increase the number of completed homes this year.

The plans above however will surely take time and we are seeing a very vulnerable and tough housing market at the moment. It is both a tough time for sellers and buyers. Mortgage rates and mortgage prices have no end sight of dropping low anytime soon given that some major factors are also escalating.

What’s Next for the Housing Market

Will it turn out to be a housing crisis? Let us hope not but for sure it is highly affecting not only the major mortgage companies but also small ones. But do not lose hope since despite the volatility of the housing market there are still key elements that are making it afloat.

One key element is the tremendous buying power of Hispanics as their homeownership rates skyrocket. Mortgage companies and lenders need to take the initiative of removing key roadblocks in their homeownership. According to the National Association of Hispanic Real Estate Professionals, Latinos experienced a 19.1% home purchase denial rate for conventional loans and were 81% more likely to be denied than their non-Latino counterparts.

In a recent report, Black Knight said that we are encountering the worst housing market in 16 years, but existing mortgage holders gained a record $1.2T in equity in Q1 2022.

  • U.S. home prices are up 42% since the start of the pandemic, with the average home having gained almost 9% in value just since the start of 2022.
  • As of May 19, with 30-year mortgage rates at 5.25%, the share of median income required to make a principle & interest payment had climbed to 33.7%, just shy of the 34.1% high reached in July 2006.
  • U.S. mortgage holders saw their collective tappable equity increase by $1.2 trillion in Q1 2022 alone, a record for a quarter.

What do you think will happen next? Let us know your insights.

 

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