It stands to reason that fewer home sales would mean fewer loan originations, but low inventory is hitting mortgage companies and MLOs even harder in the pocketbook: The number of cash sales have increased in today's competitive buying environment to almost double the norm. According to Freddie Mac's Monthly Outlook for August, cash sales were nearly 18 percent in June compared to its average of 10 percent. Read the full report.
Freddie Mac's Chief Economist, Sean Becketti puts the numbers into an ominous, tangible perspective, saying, "If cash sales remain around 20 percent, that would translate to $172 billion less in mortgage originations than would occur if the cash share returned to its historical norm." It's tempting to take a pessimistic view and fear you'll have to work harder to simply maintain market share, but keep the following in mind:
Don't default to refis. Data from Ellie Mae's July Origination Insight Report shows refi business up three points to 35 percent of all closed loans after dropping two consecutive months, likely due to the lowest interest rates since January. Even though more consumers are raising their hands to refinance recently, the increase in share is based on volume overall. Refis consisted of 48 percent of all originations in 2016, but Freddie Mac projects that will fall to 33% for this year and 25 percent in 2018.
Strength in purchase numbers. The August 2017 forecast from Freddie Mac's Economic Housing & Research Group shows 6.01 million new and existing homes were sold in 2016. The group projects there will be 6.2 million in 2017 and 6.3 million in 2018. In spite of inventory challenges, home sales will happen.
Helping Homebuyers Combat “Cash is King” Mentality
It's hard to deny the premise that "cash is king," when it comes to a multiple offer situation in a competitive market. And trying to convince people who have the ability to make cash purchases to get financing in this still favorable interest rate climate may be difficult or completely unrealistic. What MLOs can do is ramp up their efforts and help the more typical potential home buyers combat cash:
Pre-approval: Realtors and MLOs understand the importance of pre-approval, but consumers don't. Many still don't know the difference between getting pre-qualified and pre-approved. Most important is to educate the public that getting pre-approved for a mortgage is helpful even if someone doesn't think they're ready to buy. Marketing and conversations need to convey the value of learning what it will take for someone to get pre-approved and that there's no obligation.
Pre-purchase planning: Potential buyers who know they could face cash competition are more likely to face challenges - like paying an extra month's rent to accept a quick closing date -
head-on. Work with your Realtor partners to prepare and position people to be able to act quickly.
Pitch: Encourage potential buyers to write a letter to homeowners to be included with any offer they make to purchase. A brief but personable letter (with a live signature) that introduces the buyers, describes the efforts they've made to prepare to purchase and what homeownership means to them is a great touch.
Implement an Education-Based Marketing Strategy
There's a lot MLOs can do to help homebuyers compete in today's market, but first, consumers have to get in the game. Do you have piles of leads from multiple sources littering your desk, computer or brain? Those leads aren't necessarily cold or dead, they're probably just discouraged.
Headlines like, "Inventory Shrinkage Jacked Up July's Home Prices" sound even scarier to the public when they make their way from trade magazines to local and national news. Offer another perspective to consumers (who may have done a little casual online home browsing) through consistent, education-based marketing that addresses their fears and provides useful information that can help them move forward to becoming a homeowner today or sometime in the future.
Despite today's challenges, homes are going to sell. Be part of helping people achieve something they think is difficult or out of reach by educating them and showing what's possible.
Listen to our podcast for more on pursuing purchase business, Expert Strategies: Pivot to Purchase.