Now that we’ve exited the wild year of 2020, many are wondering what to expect for 2021. While there’s no crystal ball capable of showing the mortgage industry’s future, the right data can help us prepare for what lies ahead.
That’s why we chose special guest Michael Fratantoni, chief economist and senior vice president of research and industry technology at the Mortgage Bankers Association, to kick off our quarterly webinar series. In this data-packed discussion, which you can watch on-demand here, Mike channels his superpower of turning complex concepts into easy-to-understand insights, breaking down the latest statistics on the state of the mortgage industry and key predictions for 2021.
Below, let’s dive into what he says are some of the driving factors of the shift to a purchase market.
The U.S. is Primed for a Burst of Activity
First, some stats:
- The historical average personal saving rate in the United States is 5% (BEA)
- At the peak of the pandemic, the personal saving rate jumped to 33.7% (BEA)
- At the start of 2021, the personal savings rate was at 13.7% (BEA)
The pandemic forced Americans to become homebodies, which in turn changed their spending habits. With so much change and uncertainty throughout 2020, people saved their money more than ever. At the height of the pandemic, the average personal saving rate, which is personal saving as a percentage of disposable personal income, jumped from a historical average of 5% to 33.7%. That savings rate has since dropped, but it still remains two to three times above average at 13.7%.
Chart 1: Personal Saving Rate. Source: BEA via MBA
With vaccination distribution underway, the US is primed for a boom in activity. State economies are slowly opening back up and easing restrictions. Everyone is ready to get out and about, which will result in a surge of money injected into the economy. The personal saving rate will likely continue to lower as people return to traveling, spending and socializing.
Millennial Homebuyers are Coming of Age
Here are the quick stats:
- 29-year-olds are the single largest age population in the United States (Census Bureau)
- Peak first-time homebuyers age is 32-33 years old (MBA)
- In a survey of prospective home buyers grouped by generation, 27% of millennials said they plan to buy a home in the next 12 months (National Association of Home Builders)
- U.S. population increased by 0.35% in 2020 (AGC/Census Bureau)
- Idaho’s population increased by 2.1% in 2020, the highest across all states (AGC/Census Bureau)
The most important factor of a purchase-driven market is people. So, remember all that grumbling about millennials just a few years ago? It’s time to make them your best friends. Millennials are quickly approaching the peak home buying age of 32–33. Currently 29-year-olds are the single largest age cohort in the United States, so millennials — 27% of whom plan to buy in the next 12 months — are expected to be a strong tailwind for purchase loans for several years to come. Whether lenders finance a millennial or their landlord, the demand from this group will be tremendous in immediate years.
That said, it’s worth noting that because population trends are not evenly distributed across the U.S., purchase market growth will differ by region. On the whole, U.S. population growth has slowed, having increased just 0.35% in 2020 thanks to lower birth rates, stricter immigration controls and the effects of the pandemic. As a result, states like Idaho, Arizona, Nevada, Utah, and Texas that are experiencing higher relative population growth will likely enjoy more active housing markets.
Chart 2: US Population Changes. Source: AGC/Census Bureau data via MBA
Record-Low Housing Inventory is Spurring Ravenous Demand
Let’s look at the stats:
- In December 2020, housing inventory was at 1.9 months, the lowest it’s been since the National Association of Realtors began collecting this data (NAR)
- 15% of consumers plan to buy a home in the next 12 months (National Association of Home Builders)
- Rates are expected to hit 3.4% by the end of 2021, which is still historically low exempting 2020 (MBA)
Low inventory is driving demand to a fever pitch. Last spring, people were hesitant to list their homes for sale because of the pandemic. Now, agents have figured out how to negotiate a safe and socially distant home sale. Housing shortages should ease as more existing homes are listed for sale. Another fix to the low inventory is building more homes, which the data shows single-family homes are already 30% ahead of last years’ pace.
Existing home sales are closing faster than at any time since 2005, and we can anticipate new record highs for purchase volume into 2023 as demand grows and home prices increase. Nonetheless, we won’t eclipse 2020’s $3.6 trillion total volume, so lenders will have to recalibrate their decision-making accordingly.
Chart 3: Mortgage Originations History and Forecast. Source: MBA Forecast
The Job Market is Improving
- In April 2020, there were 4.5 unemployed workers per job opening (BLS)
- 4 million people have been actively looking for work for more than 27 weeks (BLS)
- Unemployment rate is now closer to 1.5 (BLS)
If a silver lining can be found in the pandemic-induced recession, it’s that recovery will be rapid compared to the economic recession of 2008, and is already well underway. That’s because while the recession of 2008 punished every sector of the economy, the pandemic recession has hit the service industry the hardest, with other industries having found a way to operate remotely.
Chart 4: Ratio of Unemployed Workers per Job Opening. Source: BLS via MBA
At the worst point of the pandemic in April 2020, the total unemployment rate per job opening in the U.S. was 4.5. Now the unemployment rate is closer to 1.5, which is a marked improvement. Although roughly 4 million people have been actively looking for work for longer than 27 weeks, we should see continued improvement in that area as the majority of sectors outside of leisure and hospitality have adapted to operating online and have begun hiring again.
In summary, the housing market is poised for a purchase rebound, with millennial homebuyers and an improved job market clearing the path ahead. But there’s much, much more to this data story in the full recording and slide deck, available here. And if you want to get to know Mike on a more personal level, check out how he handled LBA Ware’s rapid-fire questions.