Recession Readiness Insights

Moving Forward in Today’s Mortgage Environment

Moving Forward in Today’s Mortgage Environment

May 30, 2023 | Olivia Voltaggio

In May 2023’s Market Pulse Webinar, we discussed key market dynamics within the current mortgage environment to ensure you're well positioned to focus on forward and build resilience for your organization - even during uncertain times.

We had four contributors to this month’s webinar. Jeff Jensen, Vice President at Keybridge, started off by presenting a macroeconomic update. Sharing consumer credit insights, we welcomed Tom Alif, Risk Advisor Leader at Equifax. Craig Crabtree, SVP & GM, Mortgage and Housing at Equifax offered valuable insights from within the industry along with our Guest Speaker, Joel Kan, VP, Deputy Chief Economist at Mortgage Bankers Association. 

Macroeconomic Observations 

Macroeconomic Update

We focused on four areas: 

  • the labor market,

  • consumer spending, 

  • stress with the Federal Government and the financial market as a whole, 

  • and housing market and mortgage trends. 

The labor market shows a slight dip in job postings despite the robust job market. Now, some  questions remain: How much stimulus is left over? What is the impact of the stimulus on current consumer spending, especially as we see signs of rising consumer financial stress?

Regarding consumer spending, we investigated inflation and its implications for the financial markets. While inflation has been lowered, we are still unsure of how much more needs to be done to reach the goal of 2% inflation since consumer spending has exceeded disposable income. 

A large chunk of stress within the Federal Government and the financial market rests heavily within the state of the housing market, focusing on the relationship between rising mortgage rates and decreased affordability. Mortgage Trends include an increase in mortgage rates due to inflation, decrease in housing affordability, and slowed construction due to supply chain issues all possibly leading to tighter lending conditions. The silver lining for buyers is sellers are more likely to cut a deal since we can assume they will also face higher interest rates with their own new homes. 

Consumer Credit Insights

Mortgage originations below pre-pandemic numbers here in the US, and have decreased all over the world. Meanwhile, debt has continued to increase as well as credit limits. While first mortgage delinquencies have risen slightly, auto, bankcard and private label delinquencies have finally begun to decrease for the first time in months. 

Bottom line: people are spending, but beyond their means and heavily relying on credit as inflation is impacting consumer cash flow. 

Deeper Insights and The Impact on the Mortgage Environment

Where we are, how we got here, and where we’re going:

  • Mortgage-treasury spread is still wide due to pandemic factors and post-pandemic inflation

  • Inventory is low as large rush to purchase homes in 2020-2021, current homeowners hesitant to give up their own low mortgage interest rates, and supply chain has slowed new builds

  • Forecast points to slightly lower mortgage rates by the end of 2023, as well as more predictability within market and an increase of new home construction

Mortgage Delinquencies: 

  • Higher than average consumer debt tolerance, but second lowest rate in delinquencies since 1970s; with more homeowners choosing to stay put, that also helps the delinquency rate even out

  • While affordability remains a concern, credit availability is broader as loans requiring better credit and fewer products being purchased 

  • Banks are becoming more cautious as a reflection of tightening credit and banks’ willingness to lend, however this has increased reliance on alternative data such as telco, pay TV, and utilities data 

Originations Outlook - Focus on Forward:

  • While we are experiencing historically low levels of originations, there are solid reasons for it and the forecast is hopeful to get back on track around 2025 as interest rates come down, new builds increase, and current homeowners finally decide to sell

  • Historically, home ownership rates increase with age; combining an aging population with consumers waiting to buy homes as interest rates decrease, plus new builds increasing as supply chain woes begin to dissipate, this seems great for the housing market

  • However, consumers are moving out of cities and into the suburbs/away from coastal areas to attain more affordable housing and ROI

For more information on the latest Equifax Consumer Credit Trends and to register for future Market Pulse events, click here. If you missed our May 2023 Market Pulse webinar you can view the slides here or watch the recording here.

Olivia Voltaggio

Olivia Voltaggio

Senior Content Manager, US Information Solutions

Olivia joined Equifax in 2019. She graduated from the University of Illinois at Urbana-Champaign with a Bachelor of Science degree in advertising and a Bachelor of Arts degree in English. Olivia holds an Editing Certificate from the University of Chicago Graham School.