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2023 Mortgage Predictions Depend on the Fed’s Monetary Policy

5 Jan 2023
2023 Mortgage Predictions Depend on the Fed’s Monetary Policy

The Federal Reserve is expected to loosen the reins in 2023 after aggressively raising interest rates in 2022. That may result in the light at the end of the tunnel for fintech executives asking themselves: will mortgage rates drop in 2023?

While 30-year fixed mortgage rates increased to over 7% in November, the Mortgage Bankers Association (MBA) predicts that a recession in the first half of 2023 will lead to mortgage rates declining to 5.4% by the end of 2023. The MBA’s mortgage predictions also include lower loan origination volume in 2023, with housing activity constrained by relatively high-interest rates, low inventory, and flat prices.

Although higher interest rates will slow the housing market in 2023, mortgage industry volatility should ease once the Fed feels inflation is under control. In the meantime, lenders with automation solutions should fare better in a slower market.

Prediction: Interest Rate Pressure To Continue

The financial crisis of 2008 and the global health emergency precipitated by COVID-19 contributed to more than a decade of record-low interest rates in the United States. But, in 2022, the Fed aggressively raised rates in an effort to reign in high inflation. A higher federal funds rate translates into higher mortgage rates.

Mortgage lenders, housing contractors, sellers, and homebuyers have all been impacted by a higher interest rate environment. While it’s impossible to predict precisely when and how the Fed will act in 2023, the new normal for the mortgage industry is higher interest rates.

Prediction: Market Volatility Should Ease

After a long period of historically low-interest rates, mortgage originators face the most challenging conditions since 2008. As a result, widespread layoffs have followed in the wake of falling loan volume.

Rising rates, low housing inventories, and high prices have contributed to market volatility in 2022. While lenders are grappling with lower mortgage origination volumes, the slowdown may help re-balance supply and demand in housing markets nationwide. Looking ahead, more equilibrium should help reduce volatility.

Mortgage lenders are heavily influenced by boom and bust cycles. But unlike in past market downturns, many fintechs now have digital mortgage workflows that enable them to adjust loan processing capacity without hiring or firing. Integrating technology into the mortgage process can help lenders weather a protracted period of low inventory and high-interest rates.

Prediction: Automation Will Make a Difference

Mortgage lenders constantly struggle to align operations with volume. Slower demand in 2023 is expected to result in more belt-tightening at financial institutions. But, in tandem with staff reductions, forward-thinking lenders are focused on streamlining workflow processes to drive better efficiencies.

Automation can help lenders reduce the steep mortgage volume declines during a recession. In addition to making faster, more accurate lending decisions, technology helps expand the universe of potential borrowers. Automated bank statement analysis, for instance, enables lenders to broaden their non-qualified mortgage loan programs. With overall mortgage volume lower, non-QM lending gives fintechs the ability to increase their customer base.

Technology has helped many fintechs adjust to the current market downturn with less disruption than in years past. Automation technology that wasn’t available even a decade ago now powers scalable solutions. At the same time, automation is facilitating the consolidation of mortgage workflows. In some cases, for example, loan processing that previously required three employees is now handled by just one person.

The ability to streamline day-to-day operations with technology helps fintechs optimize service delivery – even with fewer employees. The use of advanced document automation software, for example, enables lenders to review loan applications and make timely lending decisions based on an appropriate level of due diligence.

Automation helps mortgage lenders solve their most significant pain points, from document review and sorting to form completion and income calculations. In fact, technology is key to retaining market share. Mortgage lenders using automation to improve accuracy and efficiency may have a competitive advantage in what could prove to be another challenging year ahead.

Download our free ebook to learn how an automated mortgage workflow can help lenders reduce the steep mortgage volume declines in a recession.