With rising rates and slowing origination volumes, 2023 was a difficult year for the mortgage industry. So, what are the housing market predictions for the next 12 months, and how can mortgage providers prepare? Can you look forward to a more optimistic outlook in 2024? Here is a detailed recap of 2023’s mortgage trends and the near-term housing market predictions to be gleaned from them:
1. Mortgage rates surged in 2023; expect a cool-off by mid-2024
This year, interest rates hit a high of 7.79%, and combined with increasing home prices, many prospective home buyers were deterred from applying for a mortgage. Already, borrowers are feeling the pinch as they exit from the foreclosure relief measures of the pandemic. Moreover, high inflation has made a significant dip in household savings and disposable income.
This demoralizing trend from 2023 appears to be nearing a close, particularly as the Federal Reserve policymakers kept rates unchanged in November, for the second consecutive month.
In 2024, interest rates could gradually normalize and slowing inflation will drive an increase in origination volumes towards the middle of the year. Indeed, the Mortgage Bankers Association (MBA) expects a rise in origination from $1.64 trillion in 2023 to $1.95 trillion in 2024.
2. Gen Z is racing forward with home purchases; mortgage providers will have to adapt
The next housing market prediction for 2024 has to do with home buyer demographics. Gen Z, those people between 11 and 26 years of age, are buying homes at an unprecedented rate compared to their previous generations. Approximately 30% of 25-year-olds owned their home in 2022, compared to 28% of millennials when they were the same age and 27% of Gen X when they were 25.
Despite adverse economic conditions, Gen Z homebuyers are trying to find workarounds like moving to more affordable parts of the country (e.g., Virginia Beach, Virginia, and Cincinnati) and buying smaller homes (1,480 sq ft on average, as per the National Association of Realtors).
This housing market prediction shows that young home buyers are eager to find security and stability in a fast-changing world. Yet, just 31% of this group said that they have no regrets about their home purchase. In 2024, mortgage providers will need to adapt to this demographic’s expectations and requirements, from curating more competitive products to offering a frictionless home-buying journey.
3. Credit pulls will get more expensive; invest in technology to optimize underwriting
Up until 2023, FICO followed a tier-based pricing structure when delivering consumer credit reports. Hard pulls also cost more, which meant that mortgage originators could conduct a less expensive soft pull during background checks and the pre-qualification process.
This is expected to change in 2024, as FICO plans to charge a single (higher) price for all lenders, regardless of origination volumes, for both soft pulls and hard pulls.
As a result, origination (already costing $7,000-$9,000 per loan) will get more expensive. Mortgage providers need to invest in process optimization technologies like automation to keep up with this housing market prediction. Passing on the cost burden to the borrower will only lead to further hesitation in buying property, which is why lenders need to strengthen their digital infrastructure to be able to absorb the cost, at least, partially.
4. 2023’s foreclosures were lower than pre-pandemic levels; build servicing capabilities to maintain this trend
Despite a foreclosure upswing, the absolute number of foreclosures was only about 60% of pre-pandemic levels in 2023. This is a positive trend, as an increase in foreclosure activity can strain lenders’ coffers and place undue operational pressure while damaging cash flow.
A relatively stable economy is a contributing factor, as is the fact that borrowers are avoiding buying homes they cannot afford. To keep foreclosures at a manageable level, mortgage businesses need to invest in a robust servicing workflow.
This will help maintain close communication with borrowers at every step, taking advantage of modernized borrower communication channels, in order to prevent delinquencies where possible and help borrowers navigate a default scenario if it occurs. Technology plays an important role in addressing this housing market prediction, as electronic follow-ups, automated notifications, and centralized data is key to partnering with borrowers on timely payments.
Adapting to 2024 housing market predictions proactively
One thing is certain – the housing market will continue to evolve rapidly in 2024, with a possible slowdown at the beginning of the year followed by an upswing from mid-year onwards. One of the key ways to keep pace with changing trends is to invest in mortgage technologies that enable efficiency, agility, and change readiness. In 2023, more than 50% of mortgage companies were planning to increase their technology spends, and this trend will likely continue in the next few quarters.
At Nexval, we help mortgage companies proactively adapt to regulatory changes, economic shifts, and borrower expectations by harnessing the power of technology. Through integrated data fabrics, end-to-end connected workflows, and AI-assisted document management, we improve operational efficiency so you can drive the bottom line even in complex conditions.
Speak with our mortgage tech experts to know more.