Mortgage Market Affordability and Inventory Challenges

We are at a unique moment in the history of housing. With interest rates soaring rapidly, inventories at historic lows, house prices rising to unprecedented levels above incomes, and a market that is both highly anxious and digitally dependent, mortgage and real estate professionals need to be strategic to seize the market opportunity today.

We interviewed over 25 mortgage industry experts to gather the best insights, strategies and recommendations for pivoting and winning in today’s market. We have partnered with HousingWire to publish some excerpts from the report. To see the full search, Click here.

State of the Mortgage Industry in 2022: Affordability and Inventory

It’s no surprise that affordability rose to the top of the list in every interview. Black Knight reported that May was the least affordable housing market in 16 years. Inventories rose slightly as rates rose, but economists agree that the progress is nowhere near enough to pull us out of the current inventory crisis. HousingWire senior analyst Logan Mohtashami calls it “a wildly unhealthy market”.

Inventory up, historically low. Let’s start with the good news. For the first time in three years, we have seen an increase in the number of homes on the market and price decreases. In Portland, Oregon, for example, a loan officer noted that new registrations doubled in the second half of May, from 800 to 1,900 new registrations. In Seattle, Dan Keller reported that 47% of all ads had price reductions.

Inventory is expected to increase significantly more than originally expected for the year.

However, looking at the history length data, we are still at record highs. According to Mohtashami, we should be in the range of 1.52 to 1.93 million homes on the market, and we are currently around 1.0. According to Black Knight, active listings remain 67% below pre-pandemic levels with 820,000 fewer listings than expected at this time of year.

As for price cuts, if these have increased by an average of 22%, this figure would be closer to 30% in a traditional market. Finally, houses are quoted today on average 13 to 16 days depending on the market, but we should see this closer to 30 to 45 days.

Rate of income growth relative to house prices. Affordability issues were driven by more than just low inventory. Again, looking at the market over the past 40 years, debt and income have not kept up with rising housing costs. The median house price has increased by 60% since 1980, while the median family income has only increased by 25%.

Slow construction and restrictive zoning laws. One of the main causes of low inventory is due to the slowdown in construction. Builders and contractors across the country have struggled to secure basic materials and labor, leading to significant delays.

After the 2008 housing crisis, many homebuilders went out of business, and for years after the recovery, construction did not reach the level needed to meet demand. Labor shortages and pandemic-related supply chain issues further widened the inventory gap. In an interview with NPRone builder said: “If I had twice as many guys I still wouldn’t have enough…And my subcontractors, they all hurt for people.”

In addition to labor and materials, builders have struggled to meet the growing demand for multi-family units due to restrictive zoning laws. Late household formation has increased the demand for multi-family units, designed for one- and two-person households (Urban Institute). However, many neighborhoods restrict the construction of multi-family units or ADUs.

Institutional investors. In 2021, we saw the highest rate of properties being bought by investors than ever before. Austin Niemic, executive vice president of Rocket Pro TPO, said one of the reasons affordability is a challenge in their markets is because “institutional buyers are coming in and buying homes on a massive scale.”

New data published in Business Intern found that investors bought 33% of US homes on the market in January, the highest percentage in more than a decade. In recent months, investors have taken more advantage of real estate to hedge against inflation, pushing more first-time buyers out of the market.

For more trends and strategies aggregated by over 25 of the mortgage industry’s leading experts, Click here and view the full report.