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6 Market Factors Brokers Should Watch

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6 Market Factors Brokers Should Watch

After a record-breaking year for mortgages and brokers, the market is beginning to shift. Now, looking into the near future, brokers and borrowers are wondering what comes next? How will the broader trends of increasing demand and remote work from 2020 shape the housing market as more people become vaccinated for COVID-19 and economic restrictions begin being lifted?

To better understand what is on the horizon, Phil Shoemaker, President of Originations for Homepoint, recently sat down with Doug Duncan, Chief Economist for Fannie Mae, as part of our Elevate LIVE event series for brokers. During their far-reaching discussion, the two discussed how the economy is bouncing back, the rise in new homebuyers, the future of refinancing, and what the housing market will look like post-COVID.

Here are six takeaways on the market outlook that brokers need to know.

A Light at the End of the Tunnel: COVID-19 Vaccinations

The first step towards an economic recovery comes with the wide distribution of the COVID-19 vaccine. High levels of circulation of the vaccine will lead to broad re-openings of key economic sectors and renewed consumer trust in things such as travel and leisure activities. As reported by Duncan at the event, early returns on vaccinations are coming along with over 30 percent of 18+ individuals already being fully vaccinated and over 64 percent of high-risk individuals in the 65+ category getting vaccinated.

"We've never done this before, so our expectation is it's going to take a while for us to get this right—it may be a national issue but it's got to be distributed locally. So, reasonably, it took a while to get it right, but it is ramping up nicely."

— Doug Duncan, Chief Economist, Fannie Mae

Doug Duncan of Gapital Fannie Mae

Bouncing Back: Employment on An Upswing

With vaccinations ongoing, it is projected that more economic sectors will open up and unemployment will continue to drop. Duncan shared estimations that unemployment will fall to 4.5 percent by year's end and shrink to 3.8 percent by 2022. Next year's projections would put the unemployment rate in line with pre-COVID statistics in 2019 which had a 3.5 percent rate. Duncan finds that along with vaccinations we should also expect an increase in discretionary spending as more people enjoy the recently opened leisure activities, which will help with job growth.

"The consumption and spending in leisure and hospitality are dependent on discretionary spending by upper-middle- and upper-income households," adds Duncan. "It's theaters, restaurants, sporting events, cinemas, airplanes, hotels—that's discretionary spending. And if you are afraid of going out and catching a virus that could possibly be fatal you would expect that consumption of those things would decline and certainly policymakers created lockdowns of differing severities across different parts of the country [which caused] dramatic job loss in that space."

New to Market: The Rise in First-Time Homebuyers

Despite the uncertainties of last year due to COVID, housing prices soared on the heels of record low interest rates and increased demand from first-time buyers. Prices rose about 10 percent throughout 2020 with some buyers leveraging stimulus money for home purchases. Duncan reports that demand, as well as additional down payment money via stimulus, has pushed forward first-time homebuyers who were already less averse to buying during the peak of the pandemic.

"First-time homebuyers recognized the early evidence that the mortality issues [connected to COVID-19] were more in older households and had less of a sense of risk from that perspective—but also saw the dramatic decline in interest rates as a great buying opportunity," says Duncan.

Duncan noted recent challenges first-time homebuyers have competing in the market with cash buyers and the lack of inventory driving even more pressure. To compete, borrowers should focus on getting pre-qualified so they can act fast.

Settling in New Territory: Housing in an Age of Remote Work

Millennials are moving out of larger cities to less densely populated areas. The trend comes following a mixture of rising prices and increased flexibility due to remote work. Duncan highlighted the movement by sharing how major metropolises such as San Francisco, CA have only seen a two percent increase in housing prices while less populated areas such as the Inland Empire rose as much as 14 percent due to demand.

"Home prices have risen sharply across most of the country, but there's been regional variation driven by the work-at-home phenomenon—whether that's full-time or part-time—that has had an impact differentially on house prices, depending on whether you are in a densely populated area or a less densely populated area," continues Duncan.

Increasing Demand: Expect Some Refis and More Purchase

In 2020 low rates led to a major increase in refinances and added to the growing purchase rises seen in recent years. Duncan forecasts another strong year in 2021 with solid refinance numbers on the horizon even as rates increase slightly. The projection is that rates will rise to 2.7 percent on average for 30-year fixed loans this year. In 2022, rates are expected to rise to 2.9 percent on average for the market. Long term the expectation is that refinance options will decline due to increasing rates while the market shifts towards more purchase demand.

"We've gone from interest rates in the late 1970s of 18 percent to interest rates of 2.5 percent. Is it realistic to think that anytime soon there is going to be a 1 percent 30-year fixed-rate mortgage that's going to get you more refinances? I'm skeptical," finds Duncan.

Duncan recommends that brokers shore up their leads for a rising purchase market. Much of the purchase market growth will be driven by demographics, beyond any specific market cycle.

Not a Bubble: Factors Highlight a Sustainable Market

One of the most reassuring points of the presentation was when Duncan was asked if the strong market is part of a bubble. With fears of the Great Recession still fresh in people's minds, it was comforting for him to highlight the factors that point to the current market being sustainable.

As highlighted in a recent Bankrate.com post which shared insights from the Elevate LIVE event, Duncan and Shoemaker, singled out strong fundamentals such as demand and stricter loan requirements as an important aspect to keep in mind when considering today's mortgage loan factors versus the past.

"With the continued very low interest rates and very strong demographic demand, it's hard to find an argument that says it will fall apart," says Duncan.

Learn more

Get the most current market outlook forecast from Fannie Mae's Economic & Strategic Research (ESR) Group.

Hear more from Duncan and Shoemaker by listening to the full recorded presentation today.




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