2018 has been a transition year – a low rate environment encouraging refinances, a seller’s market with potential homebuyers working through limited housing inventory, and towards year-end, lower home affordability and rising rates. 2019, however, could be a different story.
New mortgage industry forecasts & projections suggest higher interest rates in the most popular 30–year fixed rate mortgages, clearly pointing to a purchase–oriented market in 2019. Also, with lower unemployment, mortgage lending standards relaxing, we can expect a change in the profile of borrowers this year.
Here are 4 mortgage industry trends that can have a significant impact on the title insurance business.
Trend 1: Long-term home loan rates to stay in the 5% range for much of 2019
2018 saw an almost 1% increase in the average rate of 30-year fixed mortgages, rising from 3.95% to 4.94%. MBA’s prediction suggests the 30-year fixed home loan would start 2019 at 5.0%, and then hover around 5.1% for the rest of the year. The economic research team of Freddie Mac also have a similar prediction in an October 2018 report.
There seems to be a consensus among experts that mortgage rates will be stable in 2019.
Trend 2: 2019 will be a purchase-dominated market
The rising trends in the mortgage rates clearly indicate that refinancing activities will see a significant decline. Data from Black Knight, an analytics firm, reveals that as of November 2018, almost 6.5 million homeowners have missed refinancing their mortgage owing to rising rates.
Bottom Line: 2019 will see a mortgage market consisting primarily of purchase loans.
Trend 3: Mortgage lending standards will continue to be more relaxed
Freddie Mac & Fannie Mae are easing the criteria they use when purchasing mortgage loans from lenders. Fannie Mae raised the Debt to income ratio by 5% and has also allowed higher Loan to value ratios making it easier for borrowers to qualify for a home loan today, as compared to previous years.
This trend is already happening and will continue into 2019.
Trend 4: Millennials will continue driving the market
Millennials are snapping up more homes as they land better jobs and bigger raises. The share of millennial homeowners was up sharply, from 36.5% in the second quarter of 2018 and 35.6% a year earlier. Millennials are a bigger demographic & as they are getting older and settling down, they are entering into their home buying years.
Millennial demand is one reason which will make 2019 a good year for new purchases.
Millennials demand speed and are not used to unnecessary paperwork or waiting. Similarly, unlike a refinance, purchase transactions require quick approval and adherence to committed closing deadlines. Mortgage lenders know this and advertise speed & efficiency of their approval and funding process. Subsequently, lenders demand the same from their vendors too. An important part of the mortgage approval process is a thorough property title search and an assessment of property taxes. Critical information like property title search reports, municipal lien search reports, real estate tax report or certificates have to be delivered by title agents quickly and on time, without compromising on quality. This puts immense pressure on title agents, potentially requiring a heavy investment in technology and manpower to avoid any issues in meeting their commitments. It is very important that they provide quick response, with nationwide coverage, to support lenders and realtors to close loans quickly and promote business.
To sustain their business and grow in 2019, title agents are partnering with service providers who have proven title insurance support experience with a robust nationwide network that can provide technology-enabled products & solutions helping them achieve operational efficiency and deliver reports faster while being cost-effective and complying with the information security, quality and other compliance requirements.