Last week’s October job numbers were full of rosy news. US employers added 638,000 jobs in October, dropping the unemployment rate by a whole percentage point to 6.9% and exceeding analyst expectations. Much of that growth came from industries hard-hit by the pandemic such as leisure and hospitality, food service, and retail.
It’s not all sunshine, though - 11 million Americans remain unemployed, about twice as many as in February, before the crisis. Job growth is slowing, too, since the nadir of April. With predictions that the ‘easy growth’ is now behind us and, in lieu of a full vaccine rollout, job growth may well slow again - so what should we expect for the mortgage industry?
Joel Kan (pictured), associate vice president of economic & industry forecasting for the Mortgage Bankers Association (MBA), still sees positivity ahead for the job market, the economy, and the mortgage industry. He predicts moderate growth ahead on the purchase side and believes the refinance boom has been “the bright spot of the year.” At the same time, he noted the uneven nature of the recovery and tight housing supply as potential headwinds for the industry going forward.
“Despite that first half shock we are still expecting positive growth in purchases into 2021, which is great news,” Kan said. “I think, though, it is worth saying that while we do have a sort of ‘V-shaped’ recovery in the in the housing market there are still households that are experiencing the impacts of the recession.”
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Looking at the wider economy, Kan sees serious weakness within that leisure and hospitality umbrella that has been hit so hard by the COVID-19 pandemic. Workers in the restaurant or movie theater industries, for example, now face tighter credit conditions in addition to impacts on the employment and income sides. Kan has seen credit tightening “across the board” driven by supply restrictions on low credit score mortgages - high LTV mortgages and products that require low down payments will remain popular and necessary for workers in those industries. Kan also sees weaknesses in the employment and credit hits many of those workers have taken.
On the servicing side, Kan believes higher forbearance rates on government loans, like the FHA program, will feed into this tighter credit picture. As some households need forbearance to get back on their feet, investors are tightening restrictions to prevent a repetition of these risks.
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Before the pandemic, inventory was already tight in the lower price tier of the housing market, according to Kan. Since then, much of the housing market’s rebound has been in higher price tiers. Lower price tiered mortgages have not rebounded with the same force, pointing at a weakness at the bottom end of the housing market.
The economy and the mortgage market are recovering, Kan stressed, but they’re recovering unevenly. Within that environment he says mortgage professionals can succeed by ensuring their clients can take advantage of low rates while affording and maintaining servicing requirements in this tight credit environment.
Relationships, too, are going to be essential in a tightening market.
“Purchase lenders have been good at working with the realtors and the builders,” Kan says. “I think now more than ever, with how tight inventory is and how competitive the market is, it’s absolutely important to maintain and rely on those relationships to get business.”