lenders became increasingly vocal about their business challenges. In Fannie Mae's Mortgage Lender Sen- timent Survey for Q4 2018, the share of lenders citing competition from other lenders as a key business challenge was 74%, up from just 39% two years prior. The heightened competition drove the net percent- age of lenders expecting profits to increase to its lowest point since the survey began in 2014. Only 11% of lenders expected profits to increase, while 45% expected a decrease — for a net rating of negative 34%. This number is likely to continue to deteriorate in 2019. Let's look at some likely causes. From an overall macroeconom- ic perspective, the U.S. economy is almost certain to slow in 2019. Growth in 2018 was largely driven by one-time factors, including the tax cuts and the less-talked-about fiscal stimulus. The effects of these policies are diminishing, and slow growth is baked into the cake. Out-

side of the U.S., there is weakening in Europe and China, which has slowed to its weakest growth in 28 years. Paradoxically, this weaken- ing macroeconomic backdrop could provide some support to the mort- gage industry as rates are unlikely to rise meaningfully. However, should the slowdown turn into something more severe and increase the risk (or the fear of) recession, lower rates may not be sufficient to generate activity in the housing market. In either case, it is unlikely rates would fall enough to trigger a significant refinancing boom. From an industry perspective, there are three potential issues that are both risks and opportu- nities. The first is the increased digitization of the mortgage ap- plication process. While this is an unambiguous good from an overall industry perspective, it does create challenges for individual players because of the significant Invest- ments that are required to create


Gathering Risks Make 2019 a Challenging Year for Mortgage Lenders






2 019 is set to be a year of signif- icant uncertainty in the hous- ing market. Macro factors in the overall economy and in the housing sector both have a broad range of possible endpoints, among the wid- est since the housing bubble burst. For mortgage lenders, this means it’s a particularly perilous time to be in business and will require some dexterity and foresight to


make it through. Home sales slowed meaningfully in 2018 as housing affordability took a dive to its lowest level in 10 years. The accumulated increase in home prices over the past six years more than tripled the amount households gained in income. This was already pushing many potential buyers out of the market, particularly at the lower end where inventory chal-

lenges exacerbated the situation. But the run up in mortgage rates for most of the year was the final nail in the coffin for many prospec- tive buyers — and home sales took a tumble. These higher mortgage rates also took a toll on refinanc- ing, meaning mortgage lenders fell prey to the even sharper decline in mortgage volume As mortgage originations slowed,




16 think realty housing news report

april 2019 17

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