5 Lessons Learned During COVID-19: The Future of Home Lending

5 Lessons Learned During COVID-19: The Future of Home Lending

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We were told the COVID-19 pandemic would lead to a real estate crisis. Some even worried we’d see the 2008 housing catastrophe play out all over again. 

Luckily, that didn’t happen. Instead, home prices skyrocketed. According to CoreLogic research, the average home price rose 11.21% from January 2020 to January 2021. The median sales price of a home in the USA is now $346,000, according to Federal Reserve data

Home lenders have seen a non-stop flow of business during this time. Thanks to historically low-interest rates during 2020, refinancing took off. In March 2020, for instance, refinancing applications soared 479%. Total home sales also reached their highest level since 2006. Needless to say, the mortgage industry has been as busy as ever during the COVID-19 pandemic. But lending hasn’t been business as usual. 

The COVID-19 pandemic has been a tragic time, with millions of deaths worldwide and countless families experiencing financial uncertainty. In the US, the economic recovery has been uneven, and we’re seeing that play out in the real estate sector.  The lending landscape has changed, especially in the way loans are actually carried out. During this time, we’ve learned a lot of lessons about what’s needed to build a sustainable home lending industry.  

Follow along as we dive into the five main lessons learned during the COVID-19 pandemic and provide insights into the future of home lending. 

1. Home lending is now a digital-first industry

Some of the biggest lessons we’ve learned have come from our own proprietary data.  We saw twice as many digital home loans processed in 2020 compared to 2019.  There’s no denying it—the COVID-19 pandemic spurred a digital transformation in the home lending industry. 

COVID-19 vastly accelerated the adoption of digital lending. This has transformed the way real estate lenders, buyers, sellers, and agents think and operate. Yes, yard signs will still be there, but the real estate’s heartbeat is online. We think this is just the beginning of a radical paradigm shift in the industry. 

2. Real estate fundamentals always matter

The COVID-19 pandemic caused a lot of economic anxiety. With memories of the 2008 housing crisis still top of mind, many folks, even real estate professionals, feared a repeat of that devastation. Such fears were reasonable to have as the US economy shrank by 3.5% in 2020

But, there are several reasons why real estate performed well. As of February 2021, the housing supply inventory within the US was 4.8 — meaning it would take only 4.8 months to sell all existing homes for sale if no new homes were built or listed.  As the Federal Reserve chart shows below, the housing supply is far lower than historical averages. This low inventory drove prices up. 

Despite recent rises, mortgage rates still remain low. The average 30-year fixed mortgage rate is 3.27%, according to BankRate (April 2021). Compare that to the early 1980s, when home loan rates eclipsed 16%. A low cost of borrowing makes buying a home and taking out a mortgage more attractive and affordable.

Mortgages are stricter than in the 2000s. As a Seattle Times report notes, no-money-down mortgages have vanished, and lenders are required to ensure borrowers can actually afford to make payments. In general, homebuyers today come with higher credit scores, better debt-to-income ratios, and larger down payments than those buying during the bubble leading up to the 2008 housing crisis. This means fewer loan defaults, and that helps hold up housing prices. 

For lenders, this should fuel optimism—loan seekers are more serious and more qualified than ever before.     

3. Economic stimulus bolsters the housing market during downturns

The Federal Government has provided an unprecedented amount of stimulus during the COVID-19 pandemic. Altogether, they’ve injected $5.3 trillion into the economy. That’s a staggering amount of money, and it’s helped the housing sector remain strong. Lenders should breathe a sigh of relief, the mass money printing has not only created stability in the existing market, but it has also created an impetus for potential first-time homebuyers to apply for a loan.

The lesson here is this: Housing is a necessary, major expense. During a recession, households seek to cover the necessities first. If stimulus money is given to households, they’ll undoubtedly use that cash to ensure they have a roof over their heads. 

Such stimulus measures benefit lenders, landlords, homeowners, renters, and anyone involved in housing (which is virtually everybody). Simply put, any efforts to stimulate the economy during a recession prop up the housing market first. 

4. Pay attention to where people are going

We heard a lot about the exodus from major cities during the Coronavirus pandemic. Well, it’s a bit more complicated. As our research shows, the “great migration” is happening. However, it’s not as dramatic as some media outlets would have you believe. Still, home lenders should keep an eye on how people migrate during the pandemic and beyond. 

The chart below shows the metro areas with the largest inflows and outflows of people. This shows why home buying is so active in cities like Phoenix, Houston, and Tampa.

The overarching lesson is that people move during economic turmoil. For those in the housing sector, it’s important to monitor and learn from these trends.  Understanding where the opportunity is (and isn’t) is invaluable information for lenders. 

5. Millennials and Gen Z are the future

Roostify’s proprietary research shows Millennials and Gen Z will soon represent the vast majority of new homebuyers. The COVID-19 pandemic may have accelerated this trend, as many folks decided to make major life decisions during this time. As our data illustrates, nearly half of all homebuyers during 2020 were under 40 years of age. 

Here are some more stats from the 2020 real estate market: 

  • Mortgage applications from Gen-Zers’ (25 and under) increased by 128%. 
  • Mortgage applications from Millennials increased by 94.7%.
  • Female loan applications increased 59.04%, while male loan applications increased 65.45%.
  • There’s been a greater increase in loans from people making under $100,000 than those making over $100,000.

Home lenders should take note. By ensuring their lending solutions meet the needs and goals of these younger generations, mortgage companies can position themselves well for the next several decades. 

Taking these lessons into the future

The COVID-19 pandemic has accelerated digital trends in home lending and impacted the real estate sector in ways we couldn’t have imagined before. The pandemic has been tragic, and we’ll feel the damage for years to come. Fortunately, it appears the economy is moving in the right direction now.

For home lenders, success now and going forward hinges on understanding the lessons we’ve learned during the pandemic. That’s how you’ll create solutions that meet the needs of homebuyers today and tomorrow.

To learn more about the ever-changing home lending landscape, explore our latest white paper featuring our proprietary home lending data. 

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