Glenn is a Mortgage Executive at Ally Home with more than 35 years of experience in consumer lending, mortgage and capital markets.
Covid-19 unleashed unprecedented changes across the business landscape, and the real estate and mortgage industries were no exception. The pandemic accelerated the shift to modernize both the home shopping and home mortgage experience. This prompted lenders and realtors alike to reimagine legacy processes from the ground up and provide consumers with a more digital-focused experience.
While the real estate market adjusts to accommodate the current environment, industry leaders must also look to prepare for new and recurring trends while implementing new best practices. There are four trends in particular that affect the here and now – and will likely continue to have implications in the long-term.
1. Digital Acceleration
Homebuyers have quickly grown accustomed to the conveniences of a digital-first world – from home grocery delivery to online car shopping to virtual home tours and nearly contactless home purchases. While the pandemic and subsequent social distancing requirements have informed customer needs in the short-term, consumers’ preference for digital interactions is unlikely to fade. The social distancing era has reshaped how consumers want to experience the home buying and mortgage process. For many, working with lenders that offer an online experience that allows them to get quickly pre-approved, lock in their rate and upload required mortgage documentation is a welcomed departure from the traditional mortgage process. The old process often required multiple time-consuming in-person visits to a lender’s office and reams of hard copy paperwork.
The traditional process may not go away anytime soon, but the shift to a digital home-buying experience is here to stay. It comes with several implications for realtors and lenders — namely establishing processes that remove friction wherever possible. A prime example of the shift to digital includes virtual open houses and home tours using VR technology or whatever tech is at a buyer’s disposal. A report from the National Association of Realtors found that of buyers surveyed who use the internet in their home search, 42% ranked the virtual tour feature as very useful. As this report was published in March 2020, there is certainly growth still to be reported. Other mortgage lending industry changes we’re beginning to see include a shift to drive-by appraisals and closings taking place virtually, rather than in person.
2. Shift From Retail To Direct
As consumers continue to embrace mortgage technology, the industry is seeing a rise in digital lenders that provide the same services once only offered by traditional brick-and-mortar retail lenders. Today’s digital lenders can represent a simpler, faster, more convenient and sometimes less expensive home financing option. As a result, many retail lenders will need to build plans to offer similar services to compete for homebuyers who prefer a modern streamlined homebuying process. This impacts the realtor industry as well. The growth of digital platforms where buyers can see listings and realtors can show their ratings are one sign that digital has arrived for realtors and is here to stay. There is also evidence that transparency in real estate ––which can in part be facilitated by digital tools – has a positive impact on individuals as well as cities.
Professionals will continue to play a critical role in guiding consumers throughout the home buying process. These professionals should aim to make the process transparent and comfortable in the absence of live person-to-person interaction. Lenders must take a holistic approach to customer experience. Platforms providing solutions that address multiple pain points — extensive realtor networks, digital flow and ease of use, and equal service — will likely be favored by homebuyers
3. Reconsolidation Of The Competitive Landscape
Prior to the 2008 financial crisis, the real estate market was a highly fragmented and competitive landscape, comprised of a plethora of both bank and non-bank lenders vying for consumers’ attention. But the market crash that led to the Great Recession greatly impacted the real estate and mortgage industries. Numerous players collapsed, sparking a wave of industry consolidation. However, this consolidation was short-lived. From 2010 to 2016, non-bank fintech lenders increased the market share of the industry from 2% to 8% and began once again disrupting and re-fragmenting the mortgage lending landscape.
While the industry is currently flourishing – buoyed by low rates – if economic conditions worsen and mortgage demand drops, we could see a new wave of industry consolidation as some non-bank home mortgage lenders struggle to compete. This thinning of the industry highlights the need for lenders to offer a broad portfolio of solutions, as smaller fintech lenders struggle to compete with peers that provide services beyond just mortgage lending.
The good news for consumers is they won’t suffer from limited options, even if the industry swings back toward increased consolidation. The mortgage landscape is so vast that even the most well-known lending brands own a relatively small share of the market, meaning homebuyers will still have plenty of lenders from which to choose.
4. Low Rates, Low Inventory, Extended Buying Seasons
Mortgage rates are expected to remain low for the foreseeable future as part of the federal government’s efforts to bolster the economy. Unprecedented low rates keep more money in Americans’ wallets that can be infused back into the economy. However, for homebuyers, record-low home market inventory continues to drive home prices up. Many first-time homebuyers are especially challenged as new construction often focuses on higher price points, instead of entry-level homes.
In addition, the cycle within the purchase market has been disrupted. This year’s spring purchase market slowed due to uncertainty surrounding the pandemic. But as telecommuting and virtual education removed the tether of where families need to live, moving in the spring to settle in before the upcoming school year started becoming less of a necessity. The industry is seeing the buying season continue to thrive this year well beyond the usual post-Labor Day slowdown.
In just a few months, the pandemic has helped to drive a pace of change in the real estate and mortgage industries that might otherwise have taken years to achieve. Now, our industry is challenged to embrace this next normal and deliver on our customers’ expectations for digital excellence. Lenders and realtors able to pivot in unison with the needs of their customers will be the ones that succeed. Those that can create a digital experience while still finding ways to maintain human touchpoints with homebuyers will flourish.