Time to Double Down on the Consumer Experience

This piece originally appeared in the July 2023 edition of MortgagePoint magazine, online now.

It’s a challenging time for consumers to buy a home. Mortgage rates have continued to tick back up toward the 7% mark, with the 30-year fixed rate at 6.79% as of June 1, and even in regions where home prices are coming down (primarily the South and West, according to the National Association of Realtors [NAR]), fierce competition among prospective homebuyers is pushing those figures higher.

Inventory scarcity continues to be an obstacle as well, although the news of a 7.2% month over month (1% year over year) increase posted at the end of April holds the promise of kicking off a new upward trend following eight months of decline. Even more promising is the resilience homebuyers have demonstrated by turning to new construction in the face of limited inventory: while NAR reports that existing home sales decreased 3.4% month over month (23.2% YOY) in April, the U.S. Census Bureau and the Department of Housing and Urban Development report a 4.1% increase (11.8% YOY) in new home sales.

That’s the kind of intrepid spirit reflected throughout the 2023 ServiceLink State of Homebuying Report (SOHBR). Released in May, this report features data from a survey of 1,000 individuals who either purchased or tried to purchase a home within the past three years. Its findings reflect a remarkable level of consumer optimism. For example, more than half (52%) of respondents surveyed said they would be open to purchasing a home in this challenging climate, and 44% of homeowner respondents said they plan to take out a home equity loan this year.

The question for lenders is how to ensure they capture a sizable piece of this action to maximize their origination volume in 2023. According to the SOHBR, the key lies in connecting with these enthusiastic homebuyers and homeowners where they are and providing the kind of mortgage experience they crave—an experience where technology, transparency, and education play central roles.

Homebuyer Behaviors, Attitudes, and Generational Trends
Having a firm grasp of who customers are and what they want and need, lays a solid foundation for lenders to evaluate their current customer experience and identify opportunities for improvement. Beginning with who they are, the SOHBR uncovered some interesting trends:

• Millennials (born 1981-1996) top the list of consumers considering purchasing a home or taking out a home equity loan. A majority of millennials surveyed—61%—said they will consider purchasing a home this year. Forty-nine percent said they plan to take out a home equity loan in 2023.
• Other generations are interested in home equity loans, too. Forty-four percent of Gen X (born 1965-1980), 41% of Gen Z (born 1997-2012), and 12% of baby boomers (born 1946-1964) say they plan to tap into their home’s equity this year. Home equity continues to be a potential strong revenue driver for lenders.
• Although smaller in numbers than the millennial generation, Gen Z is emerging as another mighty force in the real estate market. These younger buyers are eager to secure homes and are poised to make their mark on the industry.
• Even as younger generations continue to make their mark on the homebuying market today, it is the members of Gen X who are serving as thought leaders in the growing auction space. Nearly half (46%) of Gen X respondents said they would consider buying at auction (compared with 39% of millennials and Gen Z, and 30% of baby boomers). Gen X’s confidence in taking a nontraditional approach to buying may stem from their years of experience in the real estate space.

Three Ways to Elevate the Customer Experience
Now let’s look at what homebuyers want and need. Overall, respondents to the SOHBR survey shared a desire for a faster, easier, more transparent mortgage process. Lenders looking to win consumers over are incorporating a variety of technology tools and self-serve options to satisfy this need. They recognize that by providing a seamless, tech-enabled homebuying process, they improve their appeal.

Still, while technology is a huge factor, it’s not the only factor. Homebuying decision-makers also expressed that they’d like more education from their lenders and real estate agents. If they’re going to buy a home or take out a home equity loan in today’s challenging market, they want to make sure they’re doing it right.

Infusing technology: The relentless pressure on lenders to speed up processes, get borrowers to the closing table faster, and reduce costs can be eased simply through technology. Advances in self-serve apps and other digital tools—online mortgage applications, electronic document signing, remote closings, and digital self-scheduling capabilities, to name a few—make it quick and convenient for borrowers to progress through key milestones in their mortgage process.

What are borrowers looking for in their home purchase process? Tech-enabled experiences. Here are the top benefits of technology in the home purchase process, as told by SOHBR respondents:

• Convenience and ease of use (63%)
• Time savings (59%)
• Flexibility to make progress on their own schedule (51%)
• Transparency into the process (49%)
• Cost savings (40%)

As lender momentum toward incorporating digital solutions into their processes continues to accelerate, homebuyers appear to be delighted. SOHBR findings reflect their quick adoption of these digital options:

• 53% of respondents said they had applied for a mortgage online
• 48% eSigned their application or closing documents
• 25% conducted an appraisal remotely via a virtual platform
• 25% scheduled an appraisal or closing digitally

Improving transparency: Visibility = peace of mind. When asked what they would change about their mortgage experience, 48% of SOHBR respondents said they want more transparency into the steps of the process as well as the fees involved. Lenders that leverage technology in consumer-facing origination platforms can empower borrowers to track milestones and overall progress, communicate important information via push notifications, and, through digital education tools, explain what they should expect.

Providing relevant education: Buying a home can be complex and anxiety-inducing even when conditions are just right. Less conducive conditions, such as high interest rates and home prices, put even greater pressure on potential buyers, who consequently have a larger stake in any deal they make. Buyer’s fatigue is real: almost half (49%) of SOHBR respondents said they had considered buying a new home in the past 12 months but ultimately decided against it. Compare this with just 24% who said the same in the 2022 report.

These consumers are looking for relief—support to make the homebuying process easier. This presents one more opportunity for lenders to shine. Giving homebuyers easy access to information and education empowers them with the knowledge they need to make sound decisions whether they are buying their first, second, third, or subsequent home. In fact, 43% of SOHBR respondents said they would like more education from their lender or real estate agent.

What type of education is most helpful? Anything that helps answer frequently asked questions—for example:

• How much house can I afford?
• How do I calculate my monthly payments?
• Which type of loan is best for me?
• How does the homebuying process work?
• What are my options for buying a home?

This final question is particularly relevant right now, as more and more homebuyers are considering auction as a source of their next home: 40% of SOHBR respondents said they would consider buying at auction but haven’t done so yet, with 50% of those buyers saying they would use it as a primary residence.

That compares with just 33% who considered auction in 2022, 29% of whom said they would use it as their primary residence. More education about how the auction process works could help make this option accessible to more buyers.

Where to Go From Here
Regardless of the market’s next fluctuations, twists, or turns, lenders can strengthen their stances by providing an extraordinary consumer experience. That experience begins by simply understanding where homebuyers are and delivering precisely what they need.