Best Mortgage Lenders of 2020

Market Projections Timeline According to Experts

• Where We Were

  The 2008 Subprime Crisis, AKA The Great Recession

  The United States mortgage crisis was a nationwide financial crisis that began in the mid-2000s and ran until 2010. Borrowers were approved for loans they couldn't afford and there was a stark rise in foreclosures that led to the bankruptcy of multiple lending institutions across the US, contributing to what is now known as the Great Recession.

  • Hundreds of US banks went under and, as a result, Freddie Mac and Fannie Mae, two government-sponsored companies, were nationalized to stimulate the housing market
  • In 2009, the Federal Deposit Insurance Commission (FDIC) closed more than 100 banks for the first time since 1992
  • According to the US Bureau of Labor Statistics, nearly 8.7 million jobs were lost
  • Consumer spending declined more than at any time since World War II and, consequently, Americans increased their personal savings as a precaution to potential job loss, reductions in income, confidence, and credit access
  • US credit markets came to a sudden halt when the residential housing bubble burst in 2007 - 2008, affecting small American businesses that relied heavily on bank credit

• Where We Are Now

  Unemployment Rates and The Economy Today

  Roaring 20s? According to economists at Goldman Sachs, the start of the decade is looking more like we're roaring into a recession. A month ago, the US Bureau of Labor Statistics projected that by 2020, job growth would reach up to 94.7 million jobs by 2022. Now, as COVID-19 infections spread in the US, unemployment rates have soared to historic levels.

  Goldman Sachs' Chief Economist Jan Hatzius expects that this recession, however, will be much shorter than the one in 2008.

  "The good news is that we don't think it's going to last as long as the global financial crisis. This, of course, depends on the medical news and the responses to that," said Hatzius in a statement.

  The effects of the recession that started between 2007-2008, lasted several years after that due to the culmination of a decade or more of financial imbalances that were slowly built up in the economy, more specifically in housing. According to Hatzius, that's the key difference between the downturn of 2008 versus the economic crisis we're facing today due to the novel coronavirus.

  Hatzius added, "So you had a pretty deep downturn and long lasting downturn and then quite a slow recovery following the crisis. This is much more of a black swan event. There's a large constraint that has been put on economic activity in a very short period of time, Q1 and Q2 of 2020. But once that is behind us, and once the medical news is improved, the recovery should come swifter and should be stronger than what you saw coming out of 2008."

  For those facing financial hardship as a result of reduced hours or recent unemployment, government entities have already moved to help the nation overcome this temporary blow. The US Treasury Department, Internal Revenue Service (IRS), and the US Department of Labor have announced several measures as well as new legislation to protect and provide relief to employees and employers during this difficult time.

  This includes up to 80-hours of paid leave for sick workers, protections for small businesses, and unemployment insurance flexibilities, to name a few.

• What lessons from the recession can we apply today?

  In order to better assess this question, we reached out to experts, including Keith Gumbinger, Vice President of HSH Associates and Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research at the National Association of Realtors.

  Mortgage Lenders are now more cautious about how much and who they lend money to.

  According to Yun, one of the biggest mistakes that led to the subprime mortgage crisis was that mortgage lenders didn't conduct proper checks on borrowers and their ability to repay their mortgages. Thankfully, new rules and regulations have been established to prevent this from happening, and to protect lenders and borrowers alike in case of a recession.

  Homebuyers will probably exercise caution in days to come.

  According to Gumbinger, it's probably a good time to exercise caution and reassess finances. Down payment funds that may have formerly invested in the stock market may be no more, and in the case that someone wants to purchase a home they should consider alternatives such as taking a low down payment FHA-backed mortgage rather than a conventional mortgage.

  Additionally, home buying plans may be affected by a serious lack of properties for sale in the markets.

  "With 'stay at home' orders covering perhaps 80 million Americans at the moment, it's a good bet that even those considering selling their homes this spring may step back from the market until there is greater clarity about the course of the disease and economy," said Gumbinger.

  Insights Into the Mortgage Industry

  As interest rates remain low, economic indicators​ project that people will be more likely to purchase as the economy improves.

  It's worth noting, however, that the market is susceptible to external geopolitical events such as the current coronavirus pandemic. Rate shifts of this kind are not a novel occurrence, as last year mortgage rates dropped in part due to Brexit.

  "We're linked to global capital markets, and that's sort of a benefit for consumers as it keeps interest rates low," said Leonard Kiefer, Deputy Chief Economist at Freddie Mac about rate fluctuations in the mortgage market. "But this also means that if there are shocks around the world, that creates volatility in rates."

  But what does that mean for prospective homebuyers? Can we stay ahead of the market and attempt to predict when mortgage rates will drop? According to Shashank Shekhar, founder and CEO of Arcus Lending, geopolitical events have a short-term impact on mortgage rates, but those events can be difficult, if not impossible, to predict.

  He gave us the example of the novel coronavirus, which has unexpectedly affected the global markets. "Good news for the economy is bad news for rates and bad news for the economy is good news for rates," Shekhar said. "Once things get better, rates will go up again to where we started, but that was low interest to begin with," he added.

  Despite the clear influence of world events on mortgage rates, Shekhar believes these factors have little bearing on real estate sales. If mortgage rates decrease by a half percent, that won't necessarily mean more people will be queuing up to buy homes.

  Historically, there has been little correlation between mortgage rates and home prices or sales, which means the decision to purchase property is also driven by economic, financial, and emotional factors beyond interest rates.

• Moving Forward

  While low interest mortgage rates alone shouldn't drive a prospective homeowner to take the plunge, being up to date with national economic shifts can give people a good sense of the overall market stability in relation to their financial situation.

  Here's what our experts believe is in store for the mortgage market in the short and long term:

  The Mortgage Industry, Short-Term (2020-2025)

  Home Prices Will Continue to Rise, But at a Slow Pace

  

  We certainly are tracking a number of markets where affordability is a real challenge. Particularly in some of the coastal markets, home prices were increasing two to three times the rate of wage growth and that just can't be viable for too long before you scare away potential buyers. Our expectation is that, with the additional units coming on the market the rate of home price growth will decelerate a bit. So prices still increase but more slowly, and we expect that it will actually line up with the rate of wage growth, so that will build a stronger foundation for future increases in sales.

  

  Mike Fratantoni, Chief Economist and Senior Vice President of
  Industry Research Technology at the Mortgage Bankers Association

  Mortgage Rates Will Remain Low, but It'll Still Be a Seller's Market

  

  Compared to a year ago, mortgage rates are down a lot, and they have recently been heading down even more. So that's going to provide a boost for the housing market. For the long-term, that's going to persist for more than six or nine months.

  The US is undersupplied for all types of housing, not just owner-occupied housing, but also rental housing. So the fact that there's such little supply relative to demand does give sellers in any markets a big advantage, and so that's probably going to persist.

  

  Leonard Kiefer, Deputy Chief Economist at
  Freddie Mac

  The Mortgage Industry, Long-Term (2026-2040)

  An Increase in Housing Supply

  Although there's still room for improvement, things are looking up in the housing market.

  

  The data on housing is starting to show better conditions and is steadily moving in the right direction of more production. We are not back to normal yet, but at least directionally, we are moving towards a less severe housing shortage with each passing month.

  

  Lawrence Yun, Chief Economist and Senior Vice President of
  Research at the National Association of Realtors

  The more challenging aspect of the current shortage is that more Millennials are also setting their sights on the dream of homeownership.

  

  There's a wave of people entering their 30s. The challenge here for them is that the generation of Millenials and Baby Boomers are all trying to be homeowners at the same time for the next 5 years.

  Then we expect that our Silver Tsunami will kick off opening up units for potential homebuyers as demand increases.

  

  Jeff Tucker, Economist
  at Zillow's Research Department

  The Silver Tsunami

  In the next 10-20 years, more than a quarter (27.4%) of the nation's currently owner-occupied homes are likely to hit the market as their owners vacate the property or pass away. This phenomenon, referred to as the "​Silver Tsunami​," will leave room for Millennials and Gen Xers to purchase homes at affordable rates, providing a boost to the housing market.

  

  By 2037, an estimate of 1 million homes that are currently occupied by seniors aged 60 and above are expected to be vacated each year.

  As the Silver Tsunami approaches, we can expect an extra 440,000 units to be released into the market, that's an increase of 40% by the end of the 2037 timeframe.

  

  Jeff Tucker, Economist
  at Zillow's Research Department

  According to Tucker, about 700,000 homes were made available to homebuyers each year for the last 10 years.

  Areas​ that are likely to benefit from the Silver Tsunami include Miami, Orlando, Tampa, Tucson, Atlanta, Austin, Dallas, and Houston, to name a few.