5 Must-Know Takeaways From the First Half of 2023 Mortgage Market

Historic market trends don’t predict the future.

And while past trends won’t particularly tell us what will happen in the second half of 2023, there are critical lessons we can take away from the first half of 2023 to come out stronger in 2024. In a recent live webinar, CreditXpert’s VP of Marketing Mike Darne and Dan Green from Hanger6 Consulting reviewed the first half of 2023, sharing important takeaways.

The first half of 2023 was a difficult time for lenders across the board. Experiencing it once was enough for some of the loan officers reading this now, but it’s a worthwhile review because there are lessons to be learned here that we shouldn’t miss.

During the webinar, Darne and Green highlighted 5 things all lenders need to know after surviving the first half of 2023:

1. Mortgage Interest Rates are High

Anyone who has worked in the mortgage industry for more than a decade or so will tell you that mortgage rates are out of control. From interest rates below 3% in 2020, we are now in a time where they are breaking through the 7% ceiling. It’s horrible!

If you’ve been in the business for forty years and have seen even higher rates, then you know that breaking 7% is not all that bad. This longer view shows a different story, and gives a fresh perspective.

Even so, newcomers to the industry are having to learn how to sell mortgages in ways that don’t include leveraging the industry’s lowest interest rate. Most did not excel at this in the first half of 2023.

2. Home prices are high

On this point, even inexperienced industry executives have a point. Home prices are high—so high that some are wondering if we’re looking at some kind of giant, long-term bubble that is bound to pop.

The old saying that real estate is the only asset that never loses its value seems to be true. This graph shows the average price of homes sold and the dip at the end is a reflection of how there are fewer homes being sold wiht the higher interest rates.

These first two takeaways together explain why housing affordability is at an all-time low.

3. Housing supply is down and driving average sales price up

Naturally, when you have more homes worth over $1 million than you have under $250,000, you’re going to have a high average sales price and low overall affordability. That’s what we’re seeing today.

While we’re seeing builders move in strong, the starter homes we need aren’t being built and so inventory remains a problem. This, combined with repayment obligations for student loans, is forcing first-time home buyers to put the transaction on hold.

4. The refinance business is all but gone

Rising rates have effectively put most existing homeowners out of the refinance game as they are unwilling to trade in a 3% mortgage for one with closer to 7% interest rate.

After making up the bulk of the market for many years, refinances now make up 12% or less of the total origination market. This has forced loan originators to brush up on their sales skills and move into the purchase money mortgage market.

For most in the industry, this is the first time they’ve ever seen a market like this, precisely because we’ve never quite seen a market like this one.

5. Lender profitability is at historic lows

Finally, the industry learned that a high cost to originate (exceeding $13,000 now) and low overall productivity (due to overcapacity), has resulted in historically low lender profitability across the board.

Of course, our webinar speakers didn’t leave it there. There’s more to the story, including a discussion of what lenders can do now to have a much better second half of 2023. We’ll share that with you in our next post.