Written By: Joel Palmer, Op-Ed Writer
It could be a slower-than-normal summer for mortgage underwriters and processors.
The reason has little to do with the demand for homes. On the contrary, there appears to be stronger demand for homeownership.
The well-documented problem is a lack of supply. There simply aren’t as many homes being put on the market as there is demand for them.
The imbalance between supply and demand is pushing home prices higher, good news for sellers but not so much for buyers, especially those entering home ownership for the first time.
“"Home prices keep chugging along at a pace that is not sustainable in the long run," said Lawrence Yun, chief economist for the National Association of Realtors (NAR). “Current demand levels indicate sales should be stronger, but it's clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”
While both housing inventory and existing sales rose month-over-month in May, according to NAR, total housing inventory is down 8.4 percent from a year ago. Inventory numbers have fallen on year-over-year basis for 24 consecutive months, according to NAR research.
New housing construction isn’t helping the dearth of supply. The latest report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) shows that building permits and housing starts fell month-over-month and year-over-year in May.
While housing completions rose in May, there were nearly 5 percent fewer building permits issued nationwide for privately owned housing units in May compared to April. Furthermore, housing starts fell month-over-month by 5.5 percent in May, and year-over-year by 2.4 percent.
According to a report from Associate Builders and Contractors, there is a national shortage of construction workers, with the industry’s unemployment rate in some parts of the country as low as 1.5 percent to 2 percent. The industry recorded its second lowest monthly unemployment rate since 2000 during the month of May.
For the mortgage industry, these trends are compounded by what some believe is a slow and inefficient appraisal system. Like with home construction, blame for this trend lies with a shortage of licensed appraisers, the supply of which has fallen drastically in the last 10 years. With the average age of appraisers currently at 53 and approaching retirement, it’s a trend that’s likely to continue.
Why is all this happening now? In part, there is still a lingering hangover from the financial crisis of 2007.
During that time, the construction industry shed about 2 million jobs, and those affected found work in other industries. Likewise, many mortgage appraisers were forced to find jobs in other fields, and the industry has struggled to recruit new professionals, which many say is the result of licensing requirements.
The financial crisis is also impacting the supply of existing homes being put on the market. Though home values have improved in the last few years, many homeowners still have properties worth less than what they originally bought them for and may be waiting for those values to climb even more.
Those who purchased inexpensive homes with rock-bottom mortgage rates following the financial crisis are also in no hurry to sell. Upgrading would likely mean paying more for a house and being charged a higher rate. Since incomes have remained relatively flat in the last decade, not as many homeowners are in a position to spend more on their monthly payments.
Mortgage underwriters and processors likely won’t get a boost from refinancing activity, either. It’s long been predicted that refinancing activity will decline in 2017 as higher mortgage rates take effect.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.