In housing and mortgage finance, the past year will be remembered as the third year of the housing recovery and a year filled with more than its share of surprises. Equity soared to approach new peaks and a new generation became the largest customers for purchase mortgages. Yet interest rates befuddled the experts once again and fell enough to rekindle the refi market, while new forms from the CFPB designed to make closings easier for consumers changed the way mortgages are financed.
Here are some of the year’s more memorable events.
Rates stay remarkably low. While virtually every economist had rates rising over 4 percent or more, instead they rose then fell below 2014 levels in the fourth quarter. The Federal Reserve’s reluctance to raise the cost of funds in light of foreign uncertainty and the lack of domestic inflation postponed the decision and made home buying and refinancing temporarily cheaper than expected.
Unexpected refinancings help originations recover. Total originations reached a 14-year low in 2014 but bounced back as low rates and increased equity encouraged more homeowners to refinance.1Instead of falling, refinancings increased 17 percent over 20142 , accounting for nearly half of originations. Total originations rose from 1.3 trillion3 in 2014 to 1.8 trillion4 in 2015.
Housing market was good but not great. Despite low rates, the housing recovery proceeded in low gear compared to the recent past. Home sales were healthy but not as robust as they could have been. Continued tight credit and thin inventories of entry level homes kept thousands of potential first-time buyers in apartments. A bigger factor keeping young buyers away was the burden of student loan debt carried by millions, a huge barrier to homeownership. The class of 2015 graduated with $35,051 apiece in student debt, That’s about $2,000 more than their peers who graduated in 2014, though the share of students graduating with debt remained roughly the same as last year at about 70%.5
It’s no wonder that the first-time buyer market share fell to the lowest level since 1987.6 Total sales are projected to reach 5.8 million existing homes this year, a healthy 7.4 percent increase over last year but less than the breakthrough increases of 10.1 percent and 9.8 percent in 2013 and 2014 respectively.7
The equity boom arrives. Three years of rising sales resulted in an 11 percent increase in median prices from 2013 to 2015,8 helping millions of homeowners restore equity lost by the housing bust in 2007. By the middle of the year, only 17.8 percent of all homeowners with a mortgage had less than 20 percent equity, an increase of about one million over 2014.9 With prices expected to rise another 4.7 percent in 2015,10 as many as 800,000 more homeowners will be above water next year, according to CoreLogic.11Millions of newly equitied homeowners will be able to sell their homes, refinance or take out equity financing.
TRID traumatizes the industry. The Consumer Finance Protection Bureau’s new closing forms that combined existing forms into a single form complying with Truth in Lending and the Real Estate Settlement Procedures Acts were introduced in the Fall of 2015. Although TRID raised the cost of compliance by $160 per loan12 and made 30-day rate locks more difficult, the industry was prepared. The anticipated widespread delays did not materialize.13
Traditional banks leave FHA to non-banks. Eyebrows rose when Ginnie Mae announced that in the third quarter of 2015, non-bank companies accounted for 60.8 percent of VA loans and 67.1 percent of FHA loans securitized in Ginnie Mae pools. The news turned the spotlight on non-banks and helped to generate an investigation by the Consumer Financial Protection Board into the capitalization of non-banks,14 however other players, like thrifts and credit unions, are also gaining market share in mortgages.
All-cash financing fades. The all-cash phenomenon that accompanied the masses of investors that entered residential real estate after prices plunged in 2007 and foreclosures flooded local housing markets finally abated in 2015. Only 14 percent of individual buyers did not finance their purchases in 2015.15 Cash made up only 24 percent of total sales in October, down from 27 percent in October 201416and 35 percent in March 2011.17
The final chapter has yet to be written for many of these trends and events. No doubt 2016 will bring more opportunities and challenges.
9 CoreLogic Equity Report, Second Quarter 2015.
11 CoreLogic Equity Report, Second Quarter 2015
15 National Association of Realtors 2015 Profile of Home Buyers and Sellers.
17 Realtor Confidence Index September 2012.
Source: Top Takeaways of 2015
Courtesy of lending partner, Nancy DeNicola with Mortgage Master.