Mortgage Trends

In 2024, the housing market defied recession fears, with mortgage and home equity growth driven by briefly lower interest rates, strong equity positions, generally positive economic indicators, and stock market appreciation. This performance is notable because, in 2023, economists’ favorite hobby was predicting a recession in 2024. Following a period of elevated inflation, driven largely by loose monetary policy, expansionary fiscal policy, and supply chain disruptions brought on by COVID, economists were certain that the US economy would shrink. However, the economy continued outperforming expectations, even as unemployment rose modestly (Figure 2) and inflation cooled (Figure 3). Source: FRED (Figure 1, Figure 2, Figure 3). So, a good economy is good for the mortgage and home equity markets, right? Generally speaking, this statement was true. As monitored by Experian’s credit database, mortgage originations increased by approximately thirty percent year over year as of November 2024 (Figure 4), and Q3 ’24 pre-tax profit for Independent Mortgage Banks (IMBs) averaged $701 per loan.1 So, business in home lending is good — certainly better than it was during the period when the Fed was raising rates, origination volumes shrank as opposed to grew, and IMB profit per loan turned negative. Source: Experian Ascend Insights Dashboard. What constituted this growth in mortgage lending? As we all know, the Fed has lowered interest rates by 100bps since they started reducing rates in September. The market had priced in the September cut weeks prior to the actual announcement (Figure 5), and the market enjoyed a spike in refinance volume as a result (Figure 6). However, in the lead-up to and following the US presidential election, interest rates spiked back up due to the market’s expectations around future economic activity, which will dampen pressure on refinance volumes even after the recent additional rate drop. The impact of further rate drops on mortgage rates is unclear, and refinance volume still constitutes only around three percent of overall origination volume. Source: Figure 5, Figure 6 (Experian Ascend Insights Dashboard). The shift to a purchase-driven housing market What does this all mean? Our view is that pockets of refinance volume (rate and term, VA, FHA, cashout) are available to those lenders with a sophisticated targeting strategy. However, the data also very clearly indicates that this market is still very much a purchase market in terms of opportunity for originations growth. This position should not surprise long-time mortgage lenders, given that purchase volume has always constituted a significant majority of origination volume. However, this market is a different purchase market than lenders may be used to. This purchase market is different because of unprecedented statistics about the housing market itself. The average age of a first-time homebuyer recently reached a record high of 38. The average age of overall homebuyers in November of this year similarly jumped to a new record high of 56, with homes being “wildly unaffordable for young people.” Twenty-six percent of home purchases are all-cash, another record high, and homeowners have an aggregate net equity position of $17.6 trillion, fueling those all-cash purchases. The market is expensive both from an interest rate perspective and a housing price-level perspective, and those trends are driving who is buying homes and how they are buying them.2 Opportunities for lenders in 2025 What do these housing market dynamics mean for lenders? To begin with, lenders should not spend money marketing mortgages to consumers in their 50s and 60s with large equity positions. These consumers are likely to be in the 26 percent all-cash buyer cohort, and that money will be wasted since mortgages are no longer so cheap that even cash-rich buyers would take them. Further, this equity-rich generation has children, and nearly 40% of those children borrow from the bank of mom and dad to purchase their first home. Since roughly a quarter (albeit a shrinking quarter) of homebuyers are first-time homebuyers, and since 40% of those rely on help from parents to facilitate that purchase, it may make sense for lenders to identify those consumers with 1) children and 2) significant equity positions and to offer products like cash-out refinances or home equity loans/lines to help facilitate those first-time purchases. Data is critical to executing these kinds of novel marketing strategies. It is one thing to develop these marketing and growth strategies in principle and another entirely to efficiently find the consumers that meet the criteria and give them a compelling offer. Consider home equity originations. As Figure 7 illustrates, HELOC originations are strong but have completely stalled from a growth rate perspective. As Figure 8 illustrates, this is despite the market's continued growth in direct mail marketing investment. Although HELOC origination volumes are a fraction of mortgage—around $27b per month for HELOC versus $182b per month for mortgage—there are significantly more home equity direct mail offers being sent per month (39 million) for home equity products as there are for mortgage (31 million) as of October ’24.3 This all means that although many lenders have wised up to the home equity opportunity to the point of saturating the market with offers, few have successfully leveraged targeting data and analytics to craft sufficiently compelling offers to those consumers to convert those marketing leads into booked loans. Source: Figure 7 (Experian Ascend Insights Dashboard), Figure 8 (Mintel). Adapting to a resilient housing market In summary, the housing market, comprised of mortgage and home equity products, has experienced persistent growth over the past year. Many who are reading this note will have benefitted from that growth. However, as we have identified, in many respects housing market growth has 1) been concentrated to some key borrower demographics and 2) many lenders are investing in marketing campaigns that are not efficiently reaching or convincing that key housing demographic to book loans, whether it be a home equity or mortgage product. As such, as we move into 2025, Experian advises our clients to focus on the following three themes to ensure they benefit from this trend of growth into the new year: Ensure you effectively differentiate your marketing targeting, collateral, and offers for the various demographics in the market. Ensure your origination experiences for mortgage and home equity products are modern and efficient. Lenders who force all borrowers through a painful, manual legacy process will waste marketing dollars and experience pipeline fallout. Although the market is growing, other lenders are coming for your current customers. They could be coming for purchase activity, refinance opportunities, or they may be using home equity products to encroach on your existing mortgage relationship. As such, capitalizing on growth in 2025 is not merely about gaining new customers; it is also about retaining your existing book of business using high-quality data and analytics. Learn more 1 Although December numbers are available for year-over-year comparison, we excluded them due to the holiday period's strong seasonality patterns. 2 The Case-Shiller index recently topped out at record levels. 3 Mintel/Comperemedia data.

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The Fed finally made their long-awaited rate cut. Hooray! The industry is saved! Brush off the dust everyone, it’s time to start originating mortgages like it’s 2006 again! Not so fast. While it's true that there are opportunities to take advantage of now that rates have declined, there remain open questions: How much further will rates decline? So far, only this single drop has been signaled. How many customers will realize benefit from a rate & term refinance offer given the rate drop(s)? What does this rate drop mean for the purchase market given that home prices remain at all-time highs? To put it simply, there are lending opportunities for home lenders (mortgage and home equity), but only for those with the ability to effectively leverage data and analytical strategies to identify and execute on the pockets of opportunity. By “pockets of opportunity,” we mean the following categories of consumers will benefit from specific mortgage or home equity offers. Rate & term refi: According to Experian research, over 83% of mortgages have an interest rate below 6.5%. This means that only the loans originated in the past couple of years (including one held by your author) will be eligible for a rate & term refi. The dollar amount on these loans will be high along with the interest rates, so even a minor savings on the interest rate will translate to potentially hundreds of thousands of dollars in lifetime interest savings for the borrowers. Being able to accurately identify which borrowers have an interest rate that is higher than the rate you can offer them is key to efficiently targeting and originating rate & term refinances. Cashout refi: Equity levels exploded over the past several years for homeowners. Home prices show no sign of slowing down and home equity continues to be a significant, and in many cases untapped, financial resource for borrowers. A cashout refi is an excellent option for those consumers with high amounts of available equity in their homes. Some borrowers may choose to originate a cashout refinance loan even if the interest rate is similar to their existing rate, such is the value of partially liquidating their equity position. Having the consumer-level data to identify what equity positions are and the current interest rate is crucial to crafting personalized, effective marketing offers. The ability to target qualified customers with a personalized offer is critical given that in August 2024, over 2.9 million cashout direct mail offers were mailed to consumers.1 Streamlined refi: The VA and FHA have streamlined refinance programs that minimize the consumer lift to refinance their loan. Additionally, there are also non-VA and FHA loans that could benefit from what is called an “Express Title,” which removes the need for a full title workup and expedites the originations process. Borrowers that meet the criteria for these streamlined refinance offers can be identified using credit data. Since these refinances are easier for consumers, they will be more likely to respond and book a refinance offer, which means more ROI for your marketing spend. Home equity lines/loans: Similar to cashout refi, home equity products are an option for consumers to access the equity they have in their price-appreciated homes. Although this is no mystery to most lenders, many lenders do not leverage adequate data or analytics to identify the needle in the haystack of customers that still remain to be targeted. Experian data shows over $25B in monthly HELOC originations as of August 2024. Understanding which consumers have a second lien position available, how much equity they have by leveraging trade-level mortgage data and Automated Valuation Model (AVM) data, and other methods can help your home equity products stand out from the sea of offers in the mail and online. At Experian, we help our clients target and originate all four categories of borrowers: rate & term refinancers, cashout refinancers, streamlined refinancers, and home equity borrowers. Crafting a marketing strategy with the accurate data to precisely identify which consumers qualify for which product is crucial to making the most of your marketing spend. Without the guidance of such data and the personalized offers they enable, your marketing message is liable to be lost among all of the other direct mail and email blasts. Market with confidence Crafting an effective holistic marketing strategy across these segments is crucial to campaign success. Consider these borrower situations and prepare to respond with confidence: Does the consumer have a high interest rate? Would the consumer benefit from a quick rate & term refi? If yes, ship the offer out. Does the consumer have a significant equity position and outstanding revolving debt balances, but not qualify for a rate & term due to a relatively low rate? If yes, ship them a cashout refi offer with language about using their equity to pay off revolving debt. Does the consumer meet the criteria for a streamlined refi, and would they benefit financially from such an offer? If yes, ship them a VA IRRRL (Interest Rate Reduction Refinance Loan), FHA streamline, or an offer to cover their refi title expenses if they qualify for an express title. Does the consumer have an open second lien on their primary residence, but not qualify for either kind of refi? If yes, ship them a home equity offer. By creating this kind of specialized marketing waterfall, lenders can ensure they have valuable offers for all borrowers, not just for a specialized market. Such strategies allow you to target your existing portfolio or a prospect population to facilitate portfolio growth and prevent portfolio attrition. Be sure to join our upcoming webinar, "Return of the Refi: Top Lending Strategies for Becoming a Refi Master." Register now and learn more about how Experian can help you win more mortgage and home equity customers in this declining rate environment. Register now Learn more 1 Mintel data

Colorado has a great deal to offer first-time homebuyers (FTHBs). While the Denver area attracts many people with its combination of outdoor recreation, culture, and economic opportunities, other parts of Colorado are worthy of attention as well. Take Colorado Springs for example – it ranks third among best places to live in the U.S. when considering lifestyle, the job market, and overall popularity.1 Overview of the Colorado FTHB market Colorado accounts for 2.15% of all U.S. first-time homebuyers, according to Experian Housing’s recent first-time homebuyer report. This figure puts Colorado in the top 20 of all states across the country. Colorado's charm holds a special appeal for younger generations. Known for its wealth of enriching experiences, Colorado naturally attracts adventure-seekers. With an array of outdoor activities like hiking and skiing, it's no wonder that Generation Y and Generation Z make up 75% of all first-time homebuyers in the state, surpassing the national average of ~70%. Affordability With three-quarters of all FTHBs in the younger market segments, affordability is a key consideration in buying a home as housing costs are a significant part of an individual or family’s overall cost of living.2 What determines affordability? Affordability can be assessed through various metrics. For the purposes of this study, Experian Housing defined affordability by calculating the rent-to-mortgage ratio (RTM). This involves comparing monthly rent payments to monthly mortgage payments. A higher rent-to-mortgage ratio suggests renters may find mortgage payments more feasible, potentially making home buying a more appealing option. Comparison of rent costs to mortgage costs What we observed: Based on the RTM ratio, home buying is most affordable in Colorado Springs, Pueblo, and Castle Rock, while renting may look more attractive in Lakewood, Fort Collins, and Arvada. Additional measures to consider: Other realities play a key role in determining what is affordable. A prospective homebuyer’s income, monthly expenses, downpayment funds available, and the cost of the rent or mortgage payment as an added expense against income, factor heavily in final decision-making. In this regard, Experian Housing examined other metrics for assessing affordability. Debt-to-income What we observed: Down payments Sample of CO data observations: (High, mid, low down payments) Sale prices and income What we observed: Experian Housing examined the median sales prices and median incomes across the U.S. This metric is useful to see how much of one’s income typically is going to housing costs in a given area, which again, impacts overall cost of living. Comparison is essential because while sales prices may be higher in a given area, correlation with income helps determine affordability. A closer look at Colorado Springs Colorado Springs ranks #1 in affordability based on Experian’s research, and its status of best affordable place to live considering overall living costs, jobs, and livability is solid.4 The younger generation is the fastest growing population in Colorado Springs. Colorado Springs is expected to be the largest city in the state by 2050 given its current rate of growth and expansion.5 In addition to its five military installations, with a huge U.S. Air Force presence, key job sectors include the larger defense industry, education, technology, and manufacturing. Affordability coupled with opportunity and lifestyle suggest Colorado Springs deserves a closer look and area mortgage lenders have a lot to tout. Experian’s data system offers unique value to lenders given the ability to take a more comprehensive look at a borrower’s financial behavior. Experian uses credit, property, rental, and other alternative data sources to capture the borrower profile. Access to such data also gives Experian a unique ability to conduct research for reports like this one, and the recent reports on Texas and Florida. For more information about the lending possibilities for first-time homebuyers, download our white paper and visit us online. Download white paper Learn more 1 US News & World Report: Best Places to Live in the US 2024-2025 https://realestate.usnews.com/places/rankings/best-places-to-live 2 https://stg1.experian.com/blogs/insights/top-destinations-for-first-time-homebuyers/ 3 Arvada, Lakewood and Castle Rock, part of the Denver Metro Area and what is popularly known as the Front Range Urban Corridor, also have price to income ratios of 2.8%. 4 https://www.sofi.com/best-affordable-places-to-live-in-colorado/ 5 Colorado Springs Chamber & EDC, coloradospringschamberedc

As a mortgage lender, understanding the intricacies of the New York housing market is crucial, especially when dealing with first-time homebuyers (FTHBs). While the housing market fluctuates nationwide, New York presents unique challenges and opportunities that require a nuanced approach. Distinguishing NYC from the rest of New York New York City's housing market, along with its suburbs, stands distinct from the rest of the state. With a high cost of living and unique lifestyle, NYC demands a tailored mortgage marketing strategy. This article will highlight key factors affecting affordability in New York, providing valuable insights for mortgage lenders working in this market. Overview of the New York FTHB market According to Experian Housing’s recent report on first-time homebuyers, the state of New York accounts for nearly 4.9% of all first-time homebuyers nationwide.1 More than half of first-time homebuyers are from Generation Y. When combined with Gen Z, these younger buyers make up just over 67% of the state's FTHBs, a figure slightly below the national average of 69%. Affordability metrics: The rent-to-mortgage ratio For many Americans, homeownership represents stability, security, and the future for family, community, and life. However, the decision to buy versus rent often hinges on affordability. Mortgage lenders must understand this dynamic to better assist their clients. Affordability can be defined in various ways. For the purposes of this study, Experian Housing defined affordability by comparing rental and mortgage payments, known as the rent-to-mortgage ratio (RTM ratio). A higher ratio indicates that buying a home is more economically attractive. Again, this metric does not consider incomes and debt levels, but simply housing rental prices and mortgage costs. Based solely on the RTM ratio, the transition from renting to homeownership may be more attractive in New York City, Syracuse, and Oyster Bay, while the transition may be more difficult in Cheektowaga, Amherst, and Hempstead. For mortgage lenders, understanding local markets and buyer profiles is essential. Building trust through personalized service, such as educating buyers on relevant loan programs and showcasing geographic expertise, can set you apart. With this knowledge, you can help buyers make informed decisions about affordability, whether they prefer living in the city or the suburbs. In some areas, the suburbs may offer more affordable options, while in others, the city center might be more cost-effective. Additional factors: Income, debt, and down payments Affordability extends beyond just rent and mortgage payments. Prospective homebuyers must consider their income, monthly expenses, and access to funds for a down payment. Mortgage lenders need to account for these factors when advising first-time homebuyers. Debt-to-income Average DTI across the 14 cities observed was 25.6%. The chart below highlights those at the higher and lower end of the spectrum. Down payments Down payments varied greatly, but the median across the cities observed was 16.5%. The chart below highlights an example at the high, mid, and low point. Sale prices and income Experian Housing analyzed median sales prices and incomes across the U.S., with New York serving as a prime example of the importance of this comparison in assessing affordability. This correlation is crucial; while sales prices may be high, understanding how they align with local incomes helps lenders accurately gauge market dynamics and guide buyers more effectively. In conclusion, having a deep understanding of the New York housing market is invaluable for mortgage lenders aiming to support first-time homebuyers. By leveraging insights into market dynamics, affordability metrics, and borrower profiles, lenders can offer tailored advice that meets the specific needs of their clients. This not only helps buyers navigate the complexities of homeownership but also builds lasting trust and loyalty. Equipped with these insights, you, as a lender, can play a pivotal role in making the dream of homeownership a reality for first-time buyers in New York. Let's continue to empower our clients with the knowledge and guidance they need to make informed and confident decisions in their homebuying journey. For more insights, check out our recent studies on the Florida and Texas markets and download our first-time homebuyer whitepaper. Download white paper Learn more

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