Industry Contracts as Housing Inventory Expands
Written By: Joel Palmer, Op-Ed Writer
As the first quarter of 2024 draws to a close, the latest news shows an industry in consolidation that may have expanded opportunities to finance this year while still dealing with the rising costs of homeownership.
A recent report from Fitch Ratings shows that the largest U.S. non-bank mortgage lenders are gaining market share. This is largely due to consolidation and the exit of smaller lenders.
“Significantly lower industry volumes driven by higher interest rates and extremely thin housing-market inventory have resulted in meaningful capacity reduction and notable exits in the sector,” Fitch said in its report.
The agency said it expects further consolidation due to profitability constraints.
“The operating environment will remain challenging through 2024, given interest rate expectations of only modest declines from current levels,” Fitch noted. “While many originators suffered operating losses amid rapidly rising rates, scaled lenders were better equipped to navigate rate hikes and maintain operational flexibility, as cost saving initiatives were implemented and large servicing books continued to provide cash flow streams.”
This consolidation will benefit the largest originators, Fitch reported. They have the cost structure to take advantage when lending volume rebounds. Plus, many have strengthened their franchises during this period and will take advantage of their competitive positions once origination volume resume.
That could be happening soon, according to some other reports.
Zillow recently reported that new listings of existing homes on its site are up 21 percent in February compared with a year ago. Listings are also up 20 percent from January. Total inventory during the money was 12 higher on a year-over-year basis.
Zillow said there’s been an elevated share of owners expecting to sell in the next three years. “We’re likely finally beginning to see more of those sellers that have been putting off moves return to the market. Mortgage rates are notoriously hard to predict, and for many households, the prospect of potentially lower rates may not be worth waiting for,” The company said.
The market may also benefit from an influx of new home construction.
The National Association of Home Builders reported that single-family building permits grew 43 percent from January 2023 to January 2024. Permit numbers were up on a year-over-year basis in all four regions of the county and in 44 states.
In January 2024, the total number of single-family permits issued year to date (YTD) nationwide reached 75,906 — an increase of 43.1% over the January 2023 level of 53,062.
Single-family permits were up in all four regions in January.
It’s unclear how much these trends will help potential homeowners deal with the rising cost of homeownership.
As Zillow noted, the typical mortgage payment in the U.S. is up 9.4% from last year and has more than doubled since the hype of the COVID-19 pandemic.
Adding to the struggle to afford a home is the escalating cost of home insurance.
National insurance broker Guaranteed Rate reported that home insurance costs jumped 19 percent in 2023. Since 2019, the average homeowner is paying 55 percent more for coverage.
“Guaranteed Rate Insurance expects the insurance market to improve slightly in 2024 but there still will be a persistent trend of homeowners premiums increasing, deductibles rising, insurance carrier restrictions, and the purchase of additional products, such as private flood insurance to protect against increased exposures to continue.”
About the Author
As an NAMP® 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.
