7 Mortgage Market Trends to Watch in 2023
With mortgage rates beginning to drop after a period of escalation following a series of rate hikes by the Federal Reserve, the mortgage industry is bracing for a year of recession and retrenchment in 2023.
How can you prepare your organization for what’s to come? By keeping abreast of the latest predictions. Here are some of the trends that experts expect to drive the market in 2023.
Decrease in Origination Volume Due to Recession
Between high inflation and a slow housing market, industry leaders predict a recession in early 2023.
The Mortgage Bankers Association (MBA) forecasts recession within the first 6 months of the year and a decline in originations as a result. As reported by HousingWire, the MBA expects both purchase originations and refinances to fall this coming year, with total origination volume dropping from $2.26 trillion in 2022 to $2.05 trillion in 2023 – a 9% decline.
Fannie Mae also expects a recession to hit in early 2023 and originations to subsequentially fall. With its Chief Economist Doug Duncan considering the likelihood of fewer home sales and higher mortgage rates, the government-sponsored enterprise recently decreased its 2023 outlook from $2.29 trillion to $2.17 trillion.
While the MBA and Fannie Mae predict different origination volumes, it’s clear that they’re on the same page when it comes to the likelihood of a recession and the impact it will have on both purchases and refinances in 2023.
Uptick in Layoffs & Outsourcing
With a recession looming over the market, mortgage companies have been rightsizing for months. Some lenders have reduced their workforces by nearly 50% within a year.
And it’s likely that this era of layoffs will continue into 2023 due to high mortgage rates and worsening market conditions. Many mortgage originators will face no other choice as they realize hundreds of millions of dollars in financial losses.
According to HousingWire, some organizations in the industry have already turned to outsourcing in an effort to reduce costs and effectively navigate the current landscape. It’s likely this will become more of the norm in 2023.
Continued Non-QM Lending Growth
While many organizations are tightening their belts and reducing staff in anticipation of another tough year, today’s mortgage industry is more resilient than in the past, said MetaSource Strategic Account Manager Brady Meadows.
“The underlying loans we’ve been doing for the past several years are very vanilla, very stable,” Meadows said. “It’s unlikely we will see a repeat of 2008.”
Even so, non-QM loans began surging last year and are expected to remain popular in 2023. Industry leaders expect borrower demand for non-QM loans to continue to rise and it’s likely that the heightened competition for volume in the slowed market will push more lenders to enter the non-QM space.
MetaSource Executive Vice President Mary Kladde Walraven has cautioned against what she sees as a bit of industry “amnesia” around the risks of non-QM lending. However, she also described the current environment as very different from the one that gave rise to the subprime crisis.
“We are in a very unique environment,” Walraven said. “Inflation is driving everything.”
Walraven said the “counter-cyclical” nature of the mortgage industry means that recession is likely to stir new business opportunities – even as it creates disruption for some. Non-QM lending may be among these new opportunities, and it may be worth taking advantage of – as long as risk mitigation is prioritized.
Shift to a Buyers’ Market
Despite the possibility of new business opportunities on the horizon, industry experts are predicting a shift to a buyers’ market in 2023 due to high interest rates and increased property availability. In fact, the Knock Buyer-Seller Market Index shows that the transition has already begun. According to the index, the largest housing markets in the U.S. started moving favorably toward buyers in October and it’s predicted that 26% of the markets will officially favor buyers by October 2023.
However, the index also states that the top sellers’ markets will not fall in step with the markets that are shifting toward buyers. According to Forbes, these markets will, instead, “be immune from the national trend of rising inventory and slowing or falling home prices well into 2023.”
Walraven shares the belief that the purchase market will remain in place in the new year. The purchase market, driven by ordinary forces like job relocations and divorce, is evergreen, she said.
As a bit of perspective, she points out that the reaction to 7% mortgage rates is, historically speaking, a bit hyperbolic. “Even in the 1980s when rates were 19%, there was demand,” she notes.
Walraven also believes that uncertain conditions can drive innovation. As an example, she cited a trend emerging in places like Chicago, California, and New York to incentivize the conversion of under-utilized office towers into residential buildings.
With incentives that include subsidies and accelerated permitting schedules, The Wall Street Journal reports that city officials in Chicago are hoping to add affordable housing units and mitigate office vacancies created by remote-working – a workplace shift that has outlasted its status as a pandemic-related “trend.”
Similar programs are under consideration by state and local governments around the country, the Journal reports, with office use in some places still half of pre-pandemic rates.
Continuing M&A and Consolidation
The MetaSource team members cited continuing industry consolidation as a likely outcome in 2023. Many mortgage lenders and servicers are currently looking to shore up their bottom lines, and pursuing mergers and acquisitions is an option that can’t be ignored.
Up until this year, 2018 had the highest amount of lender M&As in 30 years, according to Stratmor Group’s October Insights Report. Stratmor predicts 50 M&A transactions to be announced or closed by year’s end – 50% more than in 2018.
And this wave of mergers and acquisitions is expected to continue growing in 2023. “Up to 30% of the 1,000 largest independent mortgage banks are projected to disappear by the end of 2023 via sales, mergers or failures,” reports HousingWire.
Increased Focus on Technology
Another bottom line strategy for 2023 is a continuing focus on digital tools that drive efficiency and minimize the effects of both layoffs and hiring challenges.
While industry layoffs have cut deep, recession can stir business in the mortgage industry, Walraven said. The opportunities for efficiently run businesses are likely to be there as interest rates fall, making best-in-class technology that increases workforce productivity a trend worth following in the new year.
Your Partner for Mortgage Industry Success in 2023
MetaSource offers the expertise and solutions you need to streamline your mortgage business in every kind of market. This includes outsourced services with variable pricing you can use to augment your workforce as needed without the risk of overstaffing or coming up short.
Between outsourced mortgage QC services that include non-QM audits, mortgage workflow automation, due diligence services, and fraud audit services, our solutions drive efficiency and ensure compliance for our clients throughout the mortgage lifecycle.
Contact one of our team members today to learn more about our solutions that can help you succeed in 2023 and beyond.