5 Trends to Watch in the Mortgage Market

Mortgages and interest rates play a critical role in real estate. Here are 5 trends to keep an eye on in the rapidly-changing post-coronavirus housing market.

For homebuyers, sellers, and real estate investors, few data points are as important as the ever-fluctuating state of mortgage rates. With coronavirus as backdrop, the housing market is constantly adapting to what is going on in the mortgage market. Here are 5 key mortgage trends to keep an eye on.

1. Refinancing opportunities are limited

With the mortgage industry in uncharted waters, borrowers face new obstacles limiting their ability to refinance. Fewer borrowers may be eligible for mortgage refinancing due to the following factors:

  • Higher credit score requirements
  • Tighter loan-to-value maximums
  • Unavailable loan types (for example, jumbo loans, self-employed loans, and government-backed loans)
  • A ban on rate locks until after approval

While rates remain very low, many borrowers are blocked out of a favorable mortgage refinance. Still others may simply not have access to a loan that justifies the cost.

Source: The Mortgage Reports

2. Mortgage lender requirements are tighter

Nearly 40 million Americans have filed for unemployment benefits since the start of the coronavirus pandemic. That number is likely to grow. These widespread layoffs and workforce reorganizations give lenders cause to pull back on mortgage lending activity.

Even though minimum requirements haven’t changed for FHA loans, some lenders raised FICO score requirements from a minimum of 580 to 660. Additionally, banks are going out of their way to verify employment during the loan process, even checking employment status up until the day before funds are wired.

Source: Housing Wire

3. The pandemic affects the downstream process

Industry volatility doesn’t stop at the mortgage application and approval process. The coronavirus and its resulting shutdowns affect nearly every business in America. This means things like title searches, home inspections, appraisals, and closings face disruptions, delays, and changes to normal operations.

Source: Brookings Institute

4. Those who can borrow, will

The impact of the pandemic is far-reaching, and while most negatively impacted workers are hourly (and thus not the primary demographic for buying a house), the impact is beginning to spread to salaried workers. Volatility in the stock market also has a negative effect on the high-earning population.

The net result is that anyone with ability to refinance is doing so now. Prospective borrowers with an excellent credit score, little debt, and low loan-to-value ratio will dominate the buyer pool.

Source: Bankrate

5. Current mortgage solutions are unsustainable

Government-supported mortgage forbearance programs are a stopgap for borrowers and lenders. Mortgage lenders cannot rely on forbearance in the long term if a borrower is unemployed for several months. Instead, lenders need a more streamlined assistance program, but that is currently an unknown. There won’t be a balloon payment and homeowners won’t have to repay all the missed payments at once.

Source: The Mortgage Reports

Further reading

For more information, check out the following articles on Sundae and learn about how the Covid-19 pandemic impacts the housing market.

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Polina Ryshakov

Polina is Sundae's Sr. Director of Research and Lead Economist. She has more than 15 years of valuation experience across commercial and residential real estate. Her background includes stints with Cushman & Wakefield, Hanley Wood, and Standard & Poor’s. Polina graduated with a double major in Economics and International Relations from the University of California at Davis and has been a CAIA Charter Holder since 2010.