Inventory shortages are not only hurting real estate agents but also banks and certain lending agencies in significant and profound ways.
This is clearly new territory and some of the pundits are projecting that there is a huge correction in the future, but that huge correction never materialized in 2022, nor did it materialize in the early months of 2023. In fact, prices have risen on a year-over-year basis in February, March and April. Sometimes the “experts” are so desperate to see a correction that they start predicting corrections of 10%, but there has not been a housing correction of 10% in almost 15 years, and that was due to not a supply issue but a finance anomaly that was produced by egregious loans being given to unqualified people.
This market configuration has actually never occurred before, where mortgage rates have risen, inventory has fallen dramatically, and builders are not able to even slightly make headway into the demand for housing.
One recent report indicated that in 2022 banks lost money for each mortgage they financed. In some cases the providers lost an average of $301 per loan, as reported by the Mortgage Bankers Association. This is not because the loans written were bad loans but rather there weren’t enough of them. Today the banking industry requires and rests upon a certain number of mortgages being written in order to justify the cost of the infrastructure.
According to the Mortgage Bankers Association, the banks and other mortgage institutions financed an average of $2.6 billion in loans for 2022. This was approximately half of the $5 billion amount recorded for 2021. According to the same report banks and mortgage companies expended an average of $10,624 in order to finance each home loan in 2022, representing a 23% increase in cost from 2021. The increased cost could not be passed on to customers because of the illiquidity of the market. With each loan application, every bank and loan institution was hoping the market would turn around and increase in terms of liquidity. But it never did.
In many cases, lenders are acutely aware of the disaster that followed with the unbridled lending approach that was experienced from 2006 to 2008. And so as mortgage rates rise and fewer people qualify for the higher rates, mortgage companies are out of the picture.
If you have any questions about this information or title insurance, please contact Ralph Aponte: 732.914.1400.
Counsellors Title Agency, www.counsellorstitle.net, founded in 1996, is one of New Jersey’s most respected title agencies, serving all 21 New Jersey counties with title insurance, clearing title, escrow, tidelands searches, and closing and settlement services for commercial or industrial properties, waterfront properties and marinas, condominiums, townhouses or residential single-family homes. Counsellors Title also features its own Attorney Settlement Assistance Program™ [ASAP], which is an individual resource customized to fit the needs specifically of real estate attorneys, including, Documentation, Preparation, Disbursement of Funds, Attendance at Closing, HUD Preparation or Post-Closing Matters.
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