5 forces driving disruption in the housing market

by Ryan Smith26 Sep 2019

There are five major forces driving disruption in the housing market in 2019, according to experts at analytics firm CoreLogic.

Frank Martell, CoreLogic president and CEO, and Olumide Soroye, the company’s managing director of property intelligence, outlined their take on the forces driving market disruption at the recent 2019 EPIQ client conference. According to Martell and Soroye, the major drivers of disruption in the market are:

  • The changing needs of homebuyers
  • Affordability and housing supply
  • Cost pressures on lenders
  • The growing impact of natural disasters
  • Housing finance reform

The changing needs of homebuyers
As millennials hit the age of peak first-time homebuying, it becomes more important than ever to understand the demographic’s needs and expectations, according to CoreLogic. Millennials, who have come of age in a world of instant data accessibility, expect that immediacy in the homebuying process.

“In hot markets, they may buy a home before ever setting foot into it,” Wade Sands, CoreLogic marketing operations, wrote in a news release. “As a result, lenders need to provide an end-to-end digital experience that ensures precision and accuracy in every step of the origination process.”

Affordability and housing supply
Over the last decade, the US has seen a widening gap between home supply and demand – particularly among entry-level homes. This supply gap makes it more difficult for would-be first-time buyers to enter the market. Older generations are also increasingly deciding to age in place, which prevents affordable homes from entering the market, Sands said.

Homebuilders are also facing challenges from regulation, expensive construction materials and labor shortages – all of which are strangling the supply of new homes built each year. Builders are also tending to focus on higher-priced homes, which perpetuates the scarcity of affordable inventory, CoreLogic said.

Cost pressures on lenders
Profit margins on originations have been shrinking for lenders – the average loan nets less than $300 in profit, according to CoreLogic. Costs, meanwhile, have surpassed $9,000 per loan on average, and increasing competitive pressures are squeezing lenders even more.

“Lenders will have to stay nimble and take advantage of every cost-saving innovation to remain profitable,” Sands said.

The growing impact of natural disasters
Natural disasters are becoming both more common and more destructive, CoreLogic said.

“The average cost of natural disasters has reached almost $200 billion, which is quadruple what it was in the 1980s,” Sands said. “About half of those losses are uninsured. This causes havoc in the lending market, driving up delinquencies and prices not just in disaster-struck communities, but in surrounding communities as well.”

Housing finance reform
“There are several unresolved issues in housing finance that will have tectonic ramifications for everyone in the ecosystem,” Sands said. “One of the most pressing includes the future of the GSE conservatorship.”

Government conservatorship of Fannie Mae and Freddie Mac was always intended to be temporary – but while the Trump administration has put forward a plan to eventually end the conservatorship, the follow-on effects of that plan are hard to predict.

“Related to this issue is the impending end of the QM patch, which could have significant consequences for the market share of GSEs and the private mortgage market,” Sands said.