1. Mortgage rates won’t go up that much if at all
Everyone is worried that 2016 will be the year mortgage rates finally rise. The problem is that this prediction isn’t new. These rate fears were present in 2015, 2014, and so on.
Yes, there’s going to be a time when rates finally increase, but I don’t see them rising significantly in 2016. There’s just too much economic uncertainty at the moment.
I’m glad the Fed finally raised rates…the world didn’t end and we can all move on. Sure, you’re HELOC rate will rise and could climb even higher if the Fed hikes rates again this year, but long-term rates should be just fine.
Just look at how bad the stock market has been so far…clearly everyone is unsure about our economic recovery, so rates should stay lower for longer. The only thing I should add is don’t expect them to get much better…this could be as good as it gets for a long time.
2. ARMs will gain in popularity
This could be a mistake if fixed rates rise and your ARM adjusts higher. But it’s probably a risk a lot of individuals are willing to take, whether they realize it or not. Just think it through before you decide to try your luck.
3. The FHA will lower premiums again
I didn’t think this would happen – in fact, I recently wrote that the FHA wouldn’t lower premiums again. But all I’m reading is that they will at some point in 2016. I think last I heard it was mid-2016.
Who knows what they will lower and by how much…maybe the upfront mortgage insurance premium this time. That will help new home buyers. If they lower annual premiums or change the terms of the lifelong MIP it could spark a little refinancing wave. Stay tuned.
4. Mortgage lenders will offer more zero down options
This is a trend that began in late 2015 which I believe will really take off in 2016. Let’s face it…home prices aren’t cheap and they don’t appear to be showing any signs of dropping.
Oh, and Americans continue to be terrible money managers and savers. Enter the zero down mortgage for those who can’t or are unwilling to save, but still want to buy a home. We’ve already been introduced to the Premier Purchase Program and the POPPYLOAN.
The difference this time around is that you’ll need better credit and you’ll actually have to pay off the loan, possibly faster than those who put more money down. So you’ll still need to be able to afford the mortgage, which is a good thing.
5. 3% down payments will become more common
If it’s not 100% LTV, it’ll probably be 97% LTV. Last year, Fannie Mae and Freddie Mac introduced new loan programs that only require a three percent down payment.
These should take off in 2016 as lenders integrate these offerings and pitch them to new home buyers. As expected, higher home prices mean fewer qualified buyers unless they can put less down. Programs like the Home Possible Mortgage should satisfy that need.
6. Non-QM Lending will continue to increase
If none of the above options work it’ll be non-QM lending to the rescue. It’s still not quite a household name, but everyone in the industry knows about non-QM. These loans don’t carry the same protections for lenders as QM loans do, so they’ve yet to really take off. But some lenders plan to ramp up their offerings in 2016 as the need for more outside-the-box mortgage loans is realized. The question is how risky will these lenders get?
7. Home prices will keep on climbing
Despite home prices already reaching new all-time highs in many areas of the country, I don’t see any signs of major slowing in 2016. The same conditions persist – low inventory and strong demand. That means prices must go up, even if incomes can’t necessarily keep up. As noted, the solution will be more creative financing, not lower prices.
That being said, I do think certain areas of the country are due for mini-corrections, possibly the red hot Bay Area and areas with high concentrations of oil industry workers. So as always, focus on your real estate market, not the overall housing market.
CoreLogic expects home prices to increase about 5.4% from November 2015 to November 2016, compared to 6.3% over the same period a year earlier.
8. Refinancing will be weak
While purchases may climb higher in 2016, refinancing should continue to wane. It’s not a mortgage rate problem though. It’s more the fact that most folks already refinanced and have nice low fixed rates that they’re happy to hold onto forever.
We might see more homeowners opting to take out HELOCs or closed-end second mortgages to take advantage of their newfound home equity to make improvements. The only possible bright spot is if the FHA lowers premiums. That could boost the refi numbers this year.
The MBA estimates total purchase volume of $905 billion in 2016, up from around $820 billion in 2015. Refis are expected to drop from around $650 billion in 2015 to $415 billion this year. Ouch!
9. Home builders will ramp up production
Home builders have been increasing production for a while now to meet demand, but it’ll jump even more in 2016. Per the NAHB, single-family production is expected to surge 27% in 2016 to 914,000 units, up from 719,000 in 2015 and 647,000 in 2014.
Of course, inventory will continue to be a problem because few owners are selling seeing that they have nowhere else to go, meaning first-time buyers can’t find affordable options. This seems to be the new normal and it’s unclear when and if it will change.
10. Disruptors will steal mortgage market share
Finally, I expect the disruption in the stale mortgage industry to continue. Over the past year and change we’ve seen lots of newcomers like Lenda, LendingHome, Sindeo, and SoFi make their way into the mortgage world. Oh, and that 8-minute approval from Quicken.
They’re all looking to shake things up and introduce more technology to close mortgages faster and potentially save homeowners money (and headache). It’s clear the mortgage industry needs a reboot, but it may not be easy.
We’ll see how they navigate the many hurdles the industry puts in their way. Happy New Year!
(photo: Andy Wright)