Economic trends in residential real estate suggest opportunities ahead for financial institutions in mortgage lending. In 2017, there will be more qualified borrowers, more buyers looking for a home, more new homes, and more refinancing for home improvement.
Experts expect a new credit scoring methodology to increase the number of qualified borrowers by 12 million—about 6% of U.S. FICO credit scores—according to Fair Isaac Corp.
The change, which took effect July 1, will boost the credit scores of borrowers who had negative marks due to medical collections, tax-liens, or civil judgments.
The increase is a result of efforts by the Consumer Financial Protection Bureau and the Consumer Data Industry Association (CDIA) to enhance the accuracy of credit reports. CDIA represents Equifax, Experian, and TransUnion.
In first quarter, for the first time since 2006, the number of homeowner households also increased more than the number of renter households. That trend should continue over the next few years.
Experts also are projecting an increase in first-time homebuyers. About 52% of prospective buyers looking for homes in 2017 are first-time homebuyers, according to Realtor.com. That’s up from 33% in 2016.
A survey by Zillow found that about half of U.S. homebuyers are under age 36. As millennial unemployment has fallen, from 6.28% in April 2016 to 5.25% in April 2017, this generation is beginning to fuel growth in the number of first-time homebuyers.
According to Zillow, which rates cities’ favorability for first-time home buying, almost every state has a metropolitan area that’s likely to see growth in millennial, first-time homebuyers.
Economic data also points to an increase in the housing supply. In the first three months of 2017, home building was a bright spot amid an otherwise tepid economy.
Residential investment rose a solid 13.7%, marking the strongest quarter since fourth-quarter 2015. Residential investment boosted the national gross domestic product by about 0.5%.
While the housing supply is growing, the housing market remains tight. Realtors report a sellers’ markets where houses go fast and prices increase by 2% to 5% per year.
Increased home equity underpinned a strong start for home improvement spending in 2017. Home improvement spending accounted for roughly one-third of residential investment.
A significant number of homeowners chose to obtain cash by refinancing their homes. In fact, nearly half of refinances in the first quarter involved a cash-out option, according to Freddie Mac.
That is the highest level of cash-out refinances since the fourth quarter of 2008.
These trends suggest financial institutions will see demand for mortgages to finance purchases, first-time home buying, and home improvement in 2017.
Don’t let regulation or staffing challenges keep your financial institution from capitalizing on mortgage lending opportunities. Consult a mortgage company that has solutions for your pain points.