As we reflect on first quarter, 2013 we find a real estate market which after many years appears to be gaining some stability and strength. As a result, in many markets there seems to be more home purchase demand than supply as evidenced by lower inventory, increasing values as well as multiple contracts on properties for sale. This a positive sign.
Looking further into the first quarter and specifically at interest rates, the markets experienced some volatility which in the opinion of this writer will continue throughout the remainder of the year. You might remember as we entered 2013 rates were near their historic low and throughout the first quarter rates trended up. Then toward the end of the quarter, they trended back down once again teetering on their low levels. Mortgage volume, and in particular the amount of refinance business, directly trends these interest rate gyrations so it too dropped accordingly. Lenders and investors both built staffing to accommodate the high volume of business in the last half of 2012 to increase capacity and controlled volume by margin management. And when rates rise and volumes slow, adjustments are made. And so the cycle of the business continues. Low rates mean less origination capacity and higher profit margins. Higher rates mean more origination capacity and lower profit margins.
During the first quarter additional industry information circulated around how the GSE’s (Government Sponsored Entities aka Fannie and Freddie) would be utilized going forward. The main topic of conversation has been on continued increases in the G Fees (guarantee fees) associated with mortgage backed securities which not only drive higher rates to the consumer and additional income to the GSE’s, but further would make private placement mortgage backed securities more attractive to private investors (purpose is to drive more private capital into the mortgage business allowing for less industry reliance on the GSE’s). Another area of discussion around reducing the industry’s reliance on the GSE’s is the reduction of the maximum conforming loan size eligible for purchase. In essence, more loans to the jumbo market which seems in itself to have revived over the first quarter. And all of this is happening at a time when the GSE’s are now reporting a return to profitability. Stay tuned as the outcome of these and many other policies will impact our industry.
In the end the changes mentioned above are good for our industry as it must change in order to become a more productive and profitable contributor to our economic recovery and expansion. AmeriSave is well positioned to move with these changes as they occur.
Here’s to continued expansion of the real estate business and expansion of the mortgage origination business.