Real Estate Mortgage Trends and Predictions for 2020
Like any industry, there are trends in the popularities of different home loans. With mortgage rates expected to slowly rise throughout the remainder of the year, and equity likely to increase by 2–6%, borrowers are finding bank statement loans, HELOCs and less traditional financing more attractive.
Here are some of the Mortgage Trends experts are predicting as we approach 2020.
Millennials get Moving
The largest generation in U.S. history has been hovering on the edge of homeownership for years, longer than most people expected. According to National Association of Realtors, Millennials account for 36 percent of the potential home buying marketing. That means the spillover of purchases from this group will have a huge influence on the housing market and many financial institutions are looking for ways to earn their business. According to an Urban Institute report, before the housing crisis, first-time home buyers took out about 40 percent of purchase mortgages and today the first-timer share is close to 60 percent. So how can smart mortgage companies serve this blossoming segment?
Millennials are attracted to quick and simple service. They prefer straight forward home loan programs and they are not afraid to research and compare options online. They appreciate when information is easy to share and they can access it from their mobile phones. The biggest challenge for this young and hopeful segment is often saving a sizable down payment. To get into the market we will see these consumers take advantage of home equity lines of credit (HELOC). TransUnion estimates that 10 million consumers will originate a HELOC between now and 2022.
Digital Does Better
With banking technology improving rapidly, we are flying towards a paperless world of home financing transactions. It’s a win for consumers, loan originators and real estate professionals. Digital transactions reduce cost, improve communication, add transparency and increase the access borrowers have to unique products. When people share information and collaborate, greater results are achieved.
Borrowers now have better digital tools available to prove a history of qualifying income. This is especially helpful for entrepreneurs and people who do not have a traditional w2 from an employer. Working with a lender, borrowers can build a strong presentation of their financial stability and apply for what are often referred to as Bank Statement loans. In some cases, you can get approved for a home loan with just 12 months of documentation.
HELOCs are also a huge beneficiary of the digital wave in mortgages. They are not as complex as first mortgages and therefore work great with automation. As lenders get a better understanding of new technology, we will see them reevaluating their mortgage portfolios and creating new pathways to home financing.
Rates Still Rise
Freddie Mac expects the 30-year fixed mortgage rate to rise half a percent in 2019. The National Association of Realtors predicts a rise of 0.4 percent. Fannie Mae’s forecast is for an increase of just 0.1 percentage point. These are not particularly high mortgage rate increases, especially compared to the numerous rate jumps we experienced in 2018. An increase of a quarter or a half percent on a $400,000 home loan might impact the payment by $100 a month. While not an insignificant rise in cost, most experts believe the gradual rise in rates is not going to deter home buyers who want to make a purchase.
In fact, most people feel positive about interest rates. The knowledge that today’s rates are as low as they will probably be for a long time, has a lot of buyers very interested in being able to make a purchase. If it wasn’t for the high home prices and lower inventory, we would be seeing an even greater increase in market activity.