Lending Update – Shifting Markets and the Federal Reserve

Friends of Restaino and Associates-I hope this holiday season finds you safe and healthy!  Last year at this time, I wrote about what a wildly competitive market 2021 had been.  I think most would agree, 2022 has been a challenging market for our clients, specifically on the buy side.  My name is Joe Boyle, and I am a Producing Branch Manager with Cornerstone Home Lending here in the Madison, WI area.  Thank you for reading some of my thoughts below.

Shifting Markets-The Roller Coaster
2022 started out with a bang, not slowing down at all from 2021!  Low rates to begin the year coupled with low inventory proved to be a recipe for competition!  Buyers had to put their best foot forward on every offer.  The competitive nature of 2022 required lenders and agents alike to dust off the play book.  Offers without contingencies, quick closings, bridge loans, larger down payment requirements, and co-borrowers/signors are all examples of what our clients were forced to do to appease sellers.  Cornerstone Home Lending allowed our prime clients to write cash offers with a guarantee of hard money. 

A tremendous shift in monetary policy was announced mid-2022 by the Federal Reserve.  Several rate hikes ensued, resulting in volatility across all financial markets.  Mortgage-Backed Securities did not go unaffected.  We saw interest rates begin to rise in a fashion most would call exponential in comparison to what we had become accustomed to.  Rate hikes are expected to continue in some form through the end of the year and into 2023.  If inflation remains to be a concern, rate hikes will be imminent. 

For the buyers that can afford a higher rate of interest on a mortgage, opportunity has now come knocking. We have seen the market open slightly on the buy side.  The last handful of offers across my desk afforded buyers contingencies and even seller credits for closing costs and prepaid items (escrows).  For much of the year, our VA, FHA, USDA, and WHEDA buyers felt the pinch.  Now with less competition on the buy side in some instances, these programs are being accepted again by sellers. 

Lessons of 2022 and the Future
Looking back on 2022, one word comes to mind…knowledge.  Those of us in the industry who took the time to evolve and educate ourselves won offers for our clients.  I can attest on the lending side, that I had to be extremely available, creative, explain implications of how offers were written in conjunction with buyers’ agents, call and educate listing agents, and flat out be extremely sharp on all mortgage options. Knowledge is power and those clients who chose to work with knowledgeable real estate professionals were able to seize given opportunities.  Real Estate moving forward will be challenging.  That said, 2022 exposed the necessity for well -educated representation on both the real estate and mortgage sides.  The market has helped the industry fight back from large online real estate and mortgage services. Local, local, local won! This is extremely exciting and empowering for those of us who put our clients first and always do what is right for them.  Our clients are not a number!  This market helped to demonstrate to so many the need for quality representation.

Crystal Ball-Rates
As mentioned earlier, inflation remains a concern.  To what extent the Federal Reserve will continue down said monetary policy is yet to be seen. The rising interest rate environment should slow consumer spending.  Soon if not already, a recession is imminent.  The Federal Reserve will be caught in a juggling act…inflation vs. consumer spending.  As consumer spending slows, current monetary policy may be reversed or slowed.  Should this happen, some relief in interest rates on the mortgage side is predicted. Inventory may continue to be a challenge for some time in respective markets.  For those that can afford a slightly higher interest rate, now is the time.  Should rates fall some, more buyers become eligible again!  “Marry the home, and date the rate.” With elevated interest rates, many believe a correction in home prices will appear.  This would be a logical thought to keep housing affordable.  Typically, rates and prices are somewhat inverse.  The wild card at hand is inventory.  What will 2023 bring on the inventory front!?

Working for a company that truly wants to serve clients, referral partners, and the community is very rewarding.  Cornerstone Home Lending is dedicated to making the mortgage process as efficient and easy as it can be, while progressively changing the way mortgage business is done.  Cornerstone Home Lending is a solution-oriented company offering many mortgage options!  Those options include FNMA, FHLMC, FHA, VA, USDA, WHEDA, Jumbo’s, ARM’s, Reverse Mortgages, Non-Qualified Mortgage products, non-warrantable condos, and Renovation/Construction to name a few.  Cornerstone Home Lending services the overwhelming majority of the loans they originate and underwrites loans in house!

Just as in the past, I look forward to partnering with Restaino and Associates in 2023! Please let me know how I can be of help to you and your business. I am available to you anytime as a resource.  Below is a valuable tool for you to share with friends, family, and your clients!