Navigating the Mortgage Market in 2023

A recent installment in the Five Star Institute Webinar Series, “U.S. Economy and Mortgage Market Outlook,” focused on the current headwinds and tailwinds facing the U.S. economy and the mortgage marketplace.

Presented in partnership with SWBC, the webinar featured commentary from industry experts Blake Hastings, SVP of Corporate Strategy and Chief Economist with SWBC, and Ed Delgado, AMP, Managing Director of Mortgage Policy Advisors; and Chairman Emeritus of Five Star Global, moderated by MortgagePoint Editor-in-Chief David Wharton.

The Five Star Institute webinar series aims to broaden the horizons of the mortgage industry, serving as a source for complimentary insights and education about critical industry topics, led by subject-matter experts and company sponsors.

Click here or on the image below to access a recording of the Five Star Webinar “U.S. Economy and Mortgage Market Outlook,” presented in partnership with SWBC.

During the “U.S. Economy and Mortgage Market Outlook” session, Hastings and Delgado jointly explained how increased home equity loans, decreased savings, increased use of credit cards, and consumer weariness of the stability of the banking industry will all impact the mortgage industry over the next year. The duo detailed what to watch out for, what to plan for, and how to weather the upcoming economic storm.

With executive positions at Wells Fargo and Freddie Mac, Delgado has more than 25 years of experience in the mortgage banking space, and is recognized as a thought leader and innovator in the industry. Over the course of his career, he has hosted discussions on housing and financial markets with various global leaders, including U.S. Presidents Bill Clinton and George W. Bush, U.S. Secretary of State Dr. Condoleezza Rice, and U.S. Secretary of Housing and Urban Development Dr. Ben Carson. Five Star Global is the parent company of both the Five Star Institute, a leading mortgage banking trade association providing strategic services to the U.S. residential mortgage market, and The Alliance of M&A Advisors (The Alliance), an international organization serving middle-market merger and acquisition professionals.

As SVP of Corporate Strategy and Chief Economist, Hastings joined SWBC in July 2021. In his role with SWBC, he provides leadership in the areas of corporate development and long-term growth strategies. Hastings also supports the company’s business development goals and activities by leveraging external relationships in both the public and private sectors. Additionally, he provides direction in the assessment, evaluation, and management of risk throughout the organization. Prior to joining SWBC, Hastings worked for the Federal Reserve Bank of Dallas for more than 14 years, serving as an SVP overseeing the San Antonio and El Paso, Texas branch offices.

“No conversation about the U.S. economy can begin without talking about inflation,” said Hastings as he kicked off the event. “We have seen progress on inflation since it peaked last summer when inflation numbers were peaking around 9.1%, as we have come way down from that and its good news.”

Hastings added that pandemic-era economic stimulus has kept most American household propped up in this time of inflationary concern, however, those extra funds are quickly dissipating.

“Essentially, we are already at a point midway through the second quarter of 2023 where most consumers are out of these extra savings,” noted Hastings of nationwide household stimulus funds. “The thing that has been propping up consumer spending, both credit and excess savings, are whittling out. Bottom line, consumers are running out of fuel.”

Hastings noted that retail sales, adjusted for inflation, have flatlined and slid into negative territory over the past few months after maxing out their savings and reaching their credit limit, while wages are not keeping pace with inflation.

“Put it all together, and the consumer is starting to lose some of its juice,” described Hastings. “We pay attention because consumer spending is two-thirds of the U.S. economy—so goes the consumer, so goes the U.S. economy. This is really setting the table for an economic slowdown.”

Hastings concluded that the U.S. economy is heading for a recession, set to begin in the third quarter as that is the predicted time that consumers will have maxed out their credit, and be tapped dry of their extra savings. Also contributing to a recessionary environment is an inverted yield curve and tightening of credit standards, also factoring in a slowdown in the labor markets.

While Hastings discussed the overall state of the nation’s economy, Delgado zeroed in on the economy’s impact on the nation’s housing market.

“The housing market may be bruised, but no wounded,” commented Delgado. “I don’t think we are going to see the housing market as the epicenter of a financial downturn in the U.S. as it was in 2010 resulting in the Great Recession. But there may be some black eyes and bruises if we head into that shallow recession period.”

The topic of affordability was touched upon, as Delgado noted that it takes approximately 33% of the median household income to pay for a median-priced home.

“When you compare that to the peak-to-market period of 2006, as well as the loan run average of 25%, that’s a high number for people to process in terms of buying a home,” explained Delgado. “Yet, people are still buying homes. Directionally speaking when it comes to housing, every large market in the United States is unaffordable.”

And while the mainstream media deem the current economic disarray as “Housing Crisis 2.0,” Delgado notes that as an unfair assessment of the current marketplace.

“The change in pricing and the modest retreat we are seeing in rates of appreciation suggest a cool down and a correction, but not a collapse, not a crisis,” said Delgado.

Indicative of a crisis, foreclosure volume was another topic tackled during the webinar, as Delgado noted how foreclosure volume has been on the rise since the third quarter of 2020.

“The foreclosure volume for 2022 was 0.23%,” noted Delgado. “I don’t see volumes getting back to pre-COVID levels for another three quarters to a year from now. During 2010’s financial crisis, the foreclosure rate was 2.23%, so we are not even on the same continent or are remotely close to being in a foreclosure crisis. We have a long way to go before we get back to where numbers were in 2016-2018.”

So, is the nation in the midst of a housing crisis? Are enough units for sale moving into the hands of eager buyers?

“We have about 980,000 units in total housing inventory available for sale, and we need to get to around four to six million units in inventory sitting on the shelves for us to be worried, so there is no concern there,” said Delgado.

In terms of housing stock, Delgado noted that while eight to 10 months of housing supply would be deemed “problematic,” the nation is currently sitting on 2.5 months of housing supply.

A summary of the presentation from Hastings and Delgado can be found in the research brief “Mastering the Mortgage Maze in 2023: Market Outlook and Risk Management for Lenders.” The White Paper covers a number of topics, including:

• The U.S. economic outlook and the possibility of a recession
• The impact of interest rates on housing and mortgage markets
• Insights on the U.S. residential real estate sector
• The effects of domestic migration on growth differences
• A detailed analysis of home sales, supply, and pricing trends
• The growing affordability gap, and its implications for the mortgage industry
• Best practices for risk management in the current mortgage market