Colin Clark, a mortgage lender based outside Houston, Texas, is among many US citizens closely watching the Federal Reserve’s forthcoming decision on interest rates. The current aggressive series of rate hikes has been the most extensive in several decades. Despite indications that the Federal Reserve may keep rates steady at around 5.25% to 5.5%, inflation’s cooling effect has not been significant enough to make a substantial impact on the housing market.
As a result, potential homebuyers are waiting for a reduction in interest rates, leading to a stagnation in the client base of mortgage lenders like Clark. The commission-based nature of mortgage lending means that Clark’s income is tied directly to the actions of the home-buying public. Consequently, Clark has had to reduce his personal expenses across the board.
A recent study by payroll software company Everee revealed that 60% of professionals in the mortgage industry are living from one paycheck to the next. This financial strain has led to a decrease in those seeking work in mortgage lending, with a 24.5% reduction in individual licences awarded for mortgage lenders in the second quarter, according to the Nationwide Mortgage Multistate Licensing System.
The Everee study also indicated a concerning trend in the industry, with 31% of professionals contemplating leaving the sector within the next year, and 15% uncertain about their future in the business.
Interest rates have had a profound impact on Clark’s work, with refinancing, typically the majority of his workload, diminishing due to the high rates. This decrease has also deterred potential borrowers and encouraged those able to pay upfront for a home. Clark noted that on three occasions, prospective homebuyers opted to pay in full with cash.
Data from the National Association of Realtors supports this trend, with all-cash bids representing 29% of all transactions last month, a 7% increase from the previous year. Jessica Lautz, Vice President of Research at the National Association of Realtors, noted that paying in cash is one way to avoid higher interest rates.
The shift towards all-cash purchases varies greatly by region. A report from Redfin in June highlighted that in cities such as Cleveland, Ohio, over 65% of sales are made with all-cash bids.
The rise of remote work has also influenced the housing market. Real-estate agent Charlie Peavley observed people moving from densely populated, expensive areas to more affordable satellite cities, such as Fredericksburg in Virginia. Clark echoed this sentiment, citing similar trends in Houston, San Antonio, and Dallas.
The ability to work remotely has enabled homebuyers to utilise capital from properties in pricier areas to purchase homes outright in cheaper markets. Clark pointed out that many newcomers to Texas, particularly from California, have been able to purchase larger homes outright with the equity from their previous properties.
According to Lautz, many buyers are baby boomers who have substantial equity, with half of older baby boomers and a third of younger boomers paying in cash. This trend leaves younger, first-time homebuyers in a holding pattern, waiting for a rate cut from the Fed.
These market conditions have led to an increase in credit card payments for US households. Data from the New York Fed showed that for the first time, Americans have accumulated over a trillion dollars in credit card debt, highlighting the financial strain caused by the wave of rate hikes. Clark, whose credit card balances have risen in the last year, revealed that he has had to cut costs, opting for cheaper grocery items and limiting car usage to save on fuel.
