[1]Jim Cameron, Senior Partner, STRATMOR Group
Jim Cameron [1] is a Senior Partner with mortgage advisory firm, STRATMOR Group [2]. He has 30-plus years of leadership experience in the mortgage industry.
At STRATMOR, Cameron specializes in benchmarking and performance measurement, strategic planning, and market research. He was instrumental in the development of the industry-standard benchmarking program known as the MBA and STRATMOR Peer Group Roundtables (PGR) Program, and continues to lead the STRATMOR team that works with the MBA. Cameron is also active with STRATMOR’s Workshops series, moderating highly interactive sessions with senior executives focused on topics most relevant to mortgage lenders today.
And while 2023 brought with it a number of challenges for the housing marketplace, MortgagePoint recently had a chance to chat with Cameron as we begin 2024 to forecast what lies ahead for the market over the next 12 months and beyond.
What’s in store for the housing market as we enter 2024? What are some of the headwinds that the industry will be faced with in the coming year?
Jim Cameron: The main story right now is that prospective home sellers are “frozen in place” with low-rate first mortgages. Why sell your home and forfeit a 3% mortgage to buy a new and possibly larger home with a 7.5% mortgage? In a typical market, high-end and move-up buyers sell their homes which create opportunities for move-up and first-time home buyers. This “housing ladder” is severely disrupted right now by prospective home sellers staying put. This disruption will limit the growth of home sales well into 2024 and beyond.
On the other hand, it’s a great time to be a builder. New home sales are now over 30% of total home sales versus 8%-10% historically. Homes have been selling as fast as builders can build them, but that trend has recently tapered off as high rates are keeping some buyers on the sidelines. Builders can partially offset the decline in demand by taking down forward commitments, which enables them to offer lower-than-market interest rates.
On balance, while new home sales were strong in 2023, it was not nearly enough to overcome the decline in existing-home sales, which are by far the biggest component of home sales each year. Because of the ongoing housing ladder disruption, we expect only modest growth in home sales in 2024.
Do you feel an industry expansion or contraction lies ahead in 2024?
Jim Cameron: After a painful first quarter, we expect modest growth in mortgage volumes in 2024. But the first quarter will, in fact, be bloody.
While we would have expected more merger and acquisition deals to have been consummated in 2023 to date, we expect there will be an extreme amount of pressure on independent mortgage bankers in the first quarter of 2024. Warehouse lenders have been generous with waivers over the past year and a half, but the annual renewal and recertification process may cause some warehouse lenders to not renew their agreements with certain lenders. When that occurs, it may turn into a “race for the exits” situation.
We clearly have excess capacity in the industry right now, with the MBA reporting a sixth consecutive production loss for independent mortgage bankers (IMBs) in their Quarterly Performance Report for third quarter 2023. Quarterly losses are also expected in the fourth quarter of 2023 and the first quarter of 2024 due to seasonal factors, which are even more fully felt in a purchase-dominated market. Lenders have been living off servicing while burning cash in production and that can’t go on forever.
While the first quarter of 2024 will likely be the low point in this cycle, we expect small increases in mortgage volumes in subsequent quarters resulting in modest year-over-year growth in 2024. This increase in production volume in 2024 will be bolstered by the expected decline in mortgage rates into the 5.5% to 6.5% range. Recent inflation data has increased the likelihood of rate reductions in 2024. The reduction in rates will have the following impacts:
- Get some prospective sellers and buyers off the sidelines, generating an increase in purchase transactions.
- Stimulate a marginal increase in cash-out refinance transactions.
- Generate an increase in debt consolidation loans, as credit card balances have increased, and the repayment of student loan debt has restarted.
- Generate a small amount of rate and term refinances of recent vintage loans originated in the 6.5% to 8% range.
In summary, after surviving a bloody first quarter, we expect a modest increase in home sales and mortgage volumes during the second and third quarters which will result in a year-over-year increase in mortgage volumes in 2024. We may see production profits in the second and third quarters of 2024, but that will depend on how much excess capacity is wrung out of the system in the fourth quarter 2023 and first quarter 2024.