The mortgage market is set to lose steam this year.
Lenders originated a record $3.83 trillion in home loans in 2020, according to the Mortgage Bankers Association. But the amount is expected to fall to $3.3 trillion this year because rising interest rates will curb refinancing, the Wall Street Journal reported.
In turn, that is putting pressure on the industry’s profits.
“The message from all the [mortgage] companies that have reported financials publicly is that competition has increased significantly,” Guy Cecala, CEO of Inside Mortgage Finance, told the outlet.
The historically low interest rates in recent years, and especially in 2020, have been a boon to lenders as many existing mortgage holders refinanced their loans. Lenders were able to maintain higher profit margins because there were plenty of customers to go around.
When 2021 started, the 30-year mortgage rate was a record low of 2.65 percent, which made 18.7 million mortgage holders potential candidates for refinancing. But the rate has risen to 2.97 percent, shrinking the pool to 14.5 million. The housing market remains strong and by historical standards this year will still be a busy one for home lending, but not like last year.
Rocket Cos., the parent of Quicken Loans, told the outlet that the company projects its narrowest profit margin this year since before the mortgage boom.
“We’re kind of back to some of the historical longer-term margins that we’ve experienced, which on our platform are still very profitable,” Rocket CEO Jay Farner said during a call with analysts.
[WSJ] — Akiko Matsuda