Mortgage Boom Not Over…Yet
Is the mortgage cycle beginning to slow down or is there still room to run? That’s the question Telis Demos is asking over at The Wall Street Journal.
Nothing is slowing yet, as “Fourth-quarter loan volumes reported by originators so far have been huge, and there are signs that the start of 2021 may not have the typical seasonal softness”
However, margins dropped for banks and lenders in Q4, according to Piper Sandler. This has happened in past mortgage cycles and is driven by competition among lenders leading to tighter pricing.
Why does this matter? As pricing gets tighter, rates will start to rise. This causes a drop in refis which reduces the speed at which mortgages pre-pay.
We might not be there yet, though. As Demos notes, “For one, there are still a ton of mortgages with rates that make them strong candidates to be refinanced,” and even if prepayment speeds remain elevated, “then originating as many mortgages as possible now and retaining servicing rights might be the best way to get ahead of an eventual upturn in the value of that servicing”