Since many on this site may be buying or selling a home at any given time, own investment properties, or commercial real estate I'm posting this weekly update to stay current.
The data is well researched from my employer New American Funding's Research/Analytics Department.
Thus, it is fact based and only analyzing the data/trends without regard to government policy.
As I stated previously let's keep the thread informational for those that might be in the market and leave policy discussions in "The Corral".
I'll be posting the highlights here - for you data and chart geeks at the end is a link to the full report.
The Highlights -
Hey OB Nation wanted to let you know this week's report really focuses on the mortgage industry itself so it doesn't have a lot of good consumer details for me to pass along this week.
That being said, before we get into the report here are my views based on the report that are important to the consumer:
1. Less purchase mortgage originations means fewer homes being sold.
A. Since Home Building has a 5X multiplier effect on a local economy this slow-down is not good for the overall economy
B. Fewer homes being sold means less inventory and higher prices - good for homeowners, but not good for housing affordability
C. All of the above means more layoffs and lost jobs - again not good for country
2. Many mortgage companies have gone out of business and/or merged, while the same will happen to many more
A. Fewer companies means less competition, which is never a good thing for the consumer
B. Companies with strong servicing departments will fare the best as the servicing revenue can offset current origination losses
C. At a certain point the remaining companies will have to raise rates and fees to be profitable no one can lose money forever
3. What the future holds for the real-estate and mortgage industry
A. Things are likely to get worse before they get better. Typically a strong housing market is good for a strong America
B. The business and economy is cyclical - nothing is ever as bad as it seems and nothing is as good as it seems
C. Change is constant and you have to adapt - the realtors are having to learn that now like the loan originators did in 2012
4. As consumer you want a healthy and vibrant mortgage market
A. It's good for the economy
B. A stronger origination market leads to better rates as volume is higher
C. More products are available in the market place to help with down-payments, or things like self-employed borrowers
Lastly, I feel I can speak for all of the Independent Mortgage Bankers on this board - THANK YOU to all of you over the years that have trusted us to help you and those you care about with your mortgage financing. I know all of them, and they are caring, competent, & professional. Your in good hands with every one of them.
Now to the Data
Key Points and Stats
- Home purchase mortgage lending activity dipped lower from 4Q2022 to 4Q2023 in 178, or 94%, of the 190 metropolitan statistical areas analyzed.
- Overall, the 190 metro areas saw a median decline of -18.1% in purchase originations from 4Q2022 to 4Q2023 and a median decline of -17.8% from 3Q2023 to 4Q2023.
- Markets concentrated in the Midwest and Southwestern states such as California outperformed their peers on a relative basis highlighting the importance of a diversified lending footprint. Lenders with heavy exposure to Southern markets saw their market opportunity shrink the most.
- Only 29% of firms (out of 342 reporting), in the latest Quarterly Mortgage Bankers Performance Report, posted pre-tax net financial profits in the 4Q2023, down from 51% in the 3Q2023.
- On a per-loan basis, production revenues decreased to $10,376 per loan in the 4Q2023, down from $10,426 per loan in the 3Q2023.
- After factoring in expenses, which shot up to $12,485 per loan, that meant that lenders reported a pre-tax net loss of $2,109 on each loan they originated in the 4Q2023, an increase from the reported loss of $1,015 per loan in the 3Q2023.
- The average pre-tax production loss was 73 basis points (bps) in the 4Q2023, compared to an average net production loss of 34 bps in the 3Q2023, and a loss of 99 bps one year ago.
- The deterioration in productivity metrics, suggests that there may still be excess capacity even after substantial employee reductions over the past two years. Some companies have been able to weather seven consecutive quarters of net production losses through cash reserves or infusions and strong servicing cash flows in the face of these tough market conditions.
- Median productivity – measured as loans closed per retail / consumer direct production employee – decreased to 1.1 loans per employee in the fourth quarter, down from 1.3 loans per employee in the third quarter.
Due to a convergence of negative factors impacting mortgage demand, home purchase mortgage lending activity dipped lower from 4Q2022 to 4Q2023 in 178, or 94%, of the 190 metropolitan statistical areas analyzed. Overall, the 190 metro areas saw a median decline of -18.1% in purchase originations from 4Q2022 to 4Q2023 and a median decline of -17.8% from 3Q2023 to 4Q2023 as the mortgage market found it difficult to match buyers with sellers.
Looking across the country, markets concentrated in the Midwest and Southwestern states such as California outperformed their peers on a relative basis highlighting the importance of a diversified lending footprint. Lenders with heavy exposure to Southern markets saw their market opportunity shrink the most.
Getting into the metro level details highlights a few notable takeaways:
- Metros that found themselves among the top 10 all closed a minimum of 10,000 purchase loans in the 4Q2023 and accounted for 29.1% of loans in this analysis.
- 7 of the top 17 largest producing metros were hit with both a quarterly and annual decline greater than that of the median across all metros to close out the year.
- There weren’t many bright spots, as just 7 metros experienced growth from 4Q2022 to 4Q2023, with Urban Honolulu, HI earning the top spot.
- The bottom 15 metros saw declines of -35.3% or more from 4Q2022 to 4Q2023, with Spartanburg, SC receiving the top underperformer spot
Considering what we outlined above around lending activity it’s not surprising to see that only 29% of firms (out of 342 reporting), in the latest Quarterly Mortgage Bankers Performance Report, posted pre-tax net financial profits in the 4Q2023, down from 51% in the 3Q2023.
On a per-loan basis, production revenues decreased to $10,376 per loan in the 4Q2023, down from $10,426 per loan in the 3Q2023. After factoring in expenses, which shot up to $12,485 per loan, that meant that lenders reported a pre-tax net loss of $2,109 on each loan they originated in the 4Q2023, an increase from the reported loss of $1,015 per loan in the 3Q2023.
The average pre-tax production loss was 73 basis points (bps) in the 4Q2023, compared to an average net production loss of 34 bps in the 3Q2023, and a loss of 99 bps one year ago.
Marina Walsh of the Mortgage Bankers Association summarizes these developments by stating, “while production revenues were relatively strong and even increased by five basis points, expenses were up more than $1,000 per loan from the previous quarter and the second-highest level ever reported in our series, indicating that lenders were unable to sufficiently adjust resources to align with fluctuating rates and volumes. At the same time, productivity metrics deteriorated, suggesting that there may still be excess capacity even after substantial employee reductions over the past two years. Despite tough market conditions, some companies have been able to weather seven consecutive quarters of net production losses through cash reserves or infusions and strong servicing cash flows.”
Speaking to the productivity comment, the report also noted that median productivity – measured as loans closed per retail / consumer direct production employee – decreased to 1.1 loans per employee in the fourth quarter, down from 1.3 loans per employee in the third quarter.
My Final Thoughts -
My dad who was in the oil and gas business for 50 years would say during the downturns, "Better days are ahead."
And guess what he was right. These times too shall pass and we will have a more robust housing market and over all economy.
May each and everyone of you have a safe and blessed Easter Weekend!
Hook 'Em!
MH
Full Report Hyperlink -
Click Here for Full Report With Charts/Diagrams
www.wfaa.com
