Introduction

The mortgage industry is constantly evolving, facing new challenges and opportunities in the wake of changing economic, regulatory, and consumer trends. To help us understand the future of the mortgage market, we have invited Andy Walden, the vice president of market research for Black Knight, a leading provider of integrated software, data and analytics solutions to the mortgage and consumer loan, real estate and capital markets verticals. Andy is also a 2021 Rising Star award winner by HousingWire, a prestigious recognition for the housing economy’s best young leaders. He is regarded for his economic and market analysis, which provide value to the entire mortgage industry, national media outlets and the public at large. In this article, Andy will share his insights on the mortgage market outlook for 2024, covering topics such as interest rates, home prices, affordability, origination volume, servicing profitability, and innovation.

Interest Rates: Will They Rise or Fall?

One of the most important factors that affect the mortgage market is the interest rate, which influences the demand for refinancing and purchase loans, as well as the cost of servicing existing loans. According to Andy, the interest rate environment in 2024 will depend largely on the Federal Reserve’s monetary policy, which in turn will be influenced by the inflation and unemployment levels. Andy expects the Fed to start tapering its asset purchases in late 2023 or early 2024, which will reduce the downward pressure on long-term interest rates. However, he also expects the Fed to keep the federal funds rate near zero until at least mid-2024, which will limit the upward pressure on short-term interest rates. Therefore, Andy predicts that the 30-year fixed mortgage rate will average around 3.5% in 2024, slightly higher than the current level of 3.1%, but still historically low.

Home Prices: Will They Continue to Soar?

Another key factor that affects the mortgage market is the home price, which influences the home equity, affordability, and demand for purchase loans. According to Andy, the home price appreciation in 2024 will moderate from the record-high levels seen in 2021 and 2022, but will still remain strong, driven by the persistent imbalance between supply and demand. Andy estimates that the national median home price will increase by 6% in 2024, compared to 14% in 2021 and 9% in 2022. He attributes the slowdown in price growth to the gradual increase in inventory, as more homeowners decide to sell their homes, and more builders ramp up their production. However, he also notes that the inventory will remain tight, as the demand for homeownership will remain high, fueled by the millennial generation, low interest rates, and favorable demographics.

Affordability: Will It Improve or Worsen?

A related factor that affects the mortgage market is the affordability, which measures the ability of potential homebuyers to afford the monthly payments on a typical home. According to Andy, the affordability in 2024 will deteriorate slightly from the current level, but will still be better than the historical average. Andy calculates the affordability using the Black Knight Home Price Index, the 30-year fixed mortgage rate, and the median household income. He projects that the monthly payment on a median-priced home will increase by 9% in 2024, compared to 18% in 2021 and 12% in 2022. He expects the income growth to offset some of the payment increase, but not all of it. Therefore, he estimates that the payment-to-income ratio will rise to 21% in 2024, compared to 20% in 2021 and 2022. However, he also points out that the payment-to-income ratio will still be lower than the 25-year average of 23%.

Origination Volume: Will It Shrink or Expand?

Another crucial factor that affects the mortgage market is the origination volume, which measures the amount of new loans originated by lenders. According to Andy, the origination volume in 2024 will shrink from the record-high levels seen in 2020 and 2021, but will still be above the historical average. Andy forecasts that the total origination volume will decline by 19% in 2024, compared to 14% in 2021 and 9% in 2022. He expects the refinance volume to drop by 32% in 2024, as fewer borrowers will benefit from refinancing due to higher interest rates and lower equity growth. However, he also expects the purchase volume to grow by 8% in 2024, as more buyers will enter the market, supported by strong demand, low rates, and improved inventory.

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Servicing Profitability: Will It Improve or Worsen?

Another vital factor that affects the mortgage market is the servicing profitability, which measures the net income or loss generated by servicing existing loans. According to Andy, the servicing profitability in 2024 will improve from the low levels seen in 2020 and 2021, but will still be below the historical average. Andy analyzes the servicing profitability using the Black Knight Mortgage Monitor, which tracks the key performance indicators of the servicing industry, such as prepayment speeds, delinquency rates, forbearance rates, and servicing costs. He anticipates that the prepayment speeds will slow down in 2024, as fewer borrowers will refinance, which will reduce the servicing runoff and increase the servicing value. He also anticipates that the delinquency and forbearance rates will decline in 2024, as more borrowers will resume their payments, which will reduce the servicing expenses and losses. However, he also acknowledges that the servicing costs will remain high, as servicers will face increased regulatory and operational challenges, such as managing the post-forbearance options, complying with the new servicing rules, and adapting to the changing consumer preferences.

Innovation: Will It Accelerate or Decelerate?

The final factor that affects the mortgage market is the innovation, which measures the adoption of new technologies, processes, and products by the mortgage industry. According to Andy, the innovation in 2024 will accelerate from the rapid pace seen in 2020 and 2021, as the mortgage industry will continue to embrace digital transformation, customer-centricity, and data-driven decision making. Andy highlights some of the emerging trends and opportunities in the mortgage innovation space, such as:

• Artificial intelligence and machine learning, which will enable lenders and servicers to automate and optimize various tasks, such as underwriting, pricing, fraud detection, compliance, customer service, and marketing.
• Blockchain and smart contracts, which will enable lenders and servicers to streamline and secure the loan origination and servicing processes, such as verification, validation, recording, and transfer of data and documents.
• Cloud computing and software-as-a-service, which will enable lenders and servicers to access and leverage scalable, flexible, and cost-effective solutions, such as origination platforms, servicing systems, data and analytics tools, and customer relationship management software.
• Application programming interfaces and open banking, which will enable lenders and servicers to integrate and collaborate with various third-party providers, such as credit bureaus, verification services, appraisal services, title services, and payment services.
• Alternative data and credit scoring, which will enable lenders and servicers to expand and diversify their customer base, by using non-traditional data sources, such as utility bills, rent payments, bank statements, and social media, to assess the creditworthiness and behavior of borrowers.

Conclusion

The mortgage market is facing a dynamic and uncertain future, shaped by various factors, such as interest rates, home prices, affordability, origination volume, servicing profitability, and innovation. To help us navigate this complex and evolving landscape, we have learned from Andy Walden, a leading expert and award-winning analyst, who shared his insights on the mortgage market outlook for 2024. We hope that this article has provided you with valuable information and insights that will help you make informed and strategic decisions in the mortgage industry. Thank you for reading. 🙏

Table: Summary of Key Points