Former Federal Housing Commissioner Dave Stevens explains why now is still a great time to buy a house and why timing the market is often a loser’s game.
Introduction: Welcome to the Homeownership Insights Podcast, your leading mortgage podcast, sponsored by Fairway Independent Mortgage Corporation. Listen as experts from across the country share knowledge to help homebuyers and homeowners make the best decisions in their homeownership journey. Our next podcast begins right now.
Casey Morris: Welcome back to the Homeownership Insights podcast. I'm Casey Morris, and today I'm talking with Dave Stevens, a mortgage industry veteran who is the former president and CEO of the Mortgage Bankers Association and who also worked for the Obama administration. We're going to be talking about why now is still a good time to buy a house. And Dave is a great person to speak to this because he has seen the industry go through these huge swings and historical moments and can really put all of this into perspective. So, Dave, thank you so much for being on today. We really appreciate it.
Dave Stevens: Great to be with you, Casey.
Casey Morris: Awesome. So, I thought before we get into the meat of the topic, it would be great just to hear in your own words sort of how you got into this business and how your career in the mortgage industry has evolved.
Dave Stevens: Sure. Well, look, I've been in this industry for almost four decades, so like a lot of folks in my generation anyway, and I think it's pretty similar to today, I fell into the business a little bit by accident. But it was 1983 and a good friend of mine had just become a loan officer, who I went to college with, at a lender in Denver, Colorado. And he was saying, you can make this X amount of dollars per year, a lot smaller amounts than you guys made the last couple of years, but it seemed like a lot. And so, I fell into the business that year.
It was an interesting time because unlike what we've been through the last few years here in the mortgage industry with 2% rates, now we're reacting to high rates. I actually joined the business when rates were in the high teens. I think 16% was my first 30-year fixed rate mortgage rate. There was no refi to be done, similar to what you're dealing with today.
But I never had the luxury of coming in in a good cycle, and so I just didn’t know better. When I made sales calls. I ended up being fourth in my company in that very first year. It was a national company with offices all around the Western states, California, etc. and got promoted up like a lot of people do and ended up running branches and regions and divisions and then ultimately ran basically all of lending.
I was then recruited to Freddie Mac in Washington, D.C., or Northern Virginia is where they’re headquartered, to be the senior vice president and heading the single-family business, which is the whole front end of Freddie Mac that deals with lenders. And that really was a major leapfrog because it brought me into new opportunities.
Wells Fargo recruited me to be their executive vice president, head wholesale. The largest privately held real estate firm in the nation recruited me to come in and be their president and chief operating officer for a company with like 14,000 real estate agents and mortgage companies. I'd probably be there today. But the housing crisis hit, President Obama gets elected in 2009, I get a call very early into his first term asking me if I'd be willing to come join that administration. So, I went through Senate confirmation and Secret Service background checks and the whole nine yards and finally got confirmed and became the Federal Housing Commissioner during the recession, which was a really interesting time.
So, I really went from originating loans like most people in our business know all too well, to suddenly being an advisor to the president and sitting in the White House quite a few times.
Casey Morris: Wow. That's quite a trajectory.
Dave Stevens: Yeah, quite a trajectory. Anyway, I left the administration like many do, especially once the Tea Party came in and we knew not a lot more was going to be accomplished just because of the divisions between the Republican Party and the Democratic Party. And the Mortgage Bankers Association asked me if I'd come in and take over the MBA in Washington. So that's sort of how I went to that route.
I tried to retire a few years ago and I left the MBA. I kind of failed at it. So, I have a consulting practice. Fairway is one of my clients, and so that's what that's what brought me to all of you. I really enjoy working with Fairway because I think you're a very unique company with a lot of unique benefits compared to so many others in the marketplace. So anyway.
Casey Morris: Well, thank you. Yeah, it is. It is a great company and a really interesting place to work. And certainly the last couple of years have been very interesting. So, I mean, yeah, I'm really just so curious to hear your take on, you know, what are your impressions of the housing market this year, especially in light of the fact that, you know, you've seen all of these things, these historical things happen in the market. I mean, you saw the, you know, you were there for the crash. You were working with the Obama administration. Then the pandemic happens, and rates dropped, you know, into the twos.
So, it's been such a spectrum that you have seen. So, you know, how would you put this year into context for people who are kind of like, oh, you know, a couple of years ago or last year, rates were this low and now they're so much higher? And you know, who are panicking a little bit about their opportunities in the housing market?
Dave Stevens: Yeah, I saw a blog post today that said my Uber driver last night was a former loan officer. I think this is this is a really challenging time. This is a year of extraordinary uncertainty. But I, I think the unfortunate reality is too many in our business have never been through a correction. As you said, I've been through many. And this one's a big one because it's very difficult to come off of the two largest mortgage origination years in U.S. history. Two back to back $4 trillion years. We hadn't had a year that big since 2003. And ever since then, it's been a lot smaller.
In a year like this, we're going to do about $2.4 trillion, down about 1.6, 1.7 trillion from the previous year. That's a huge contraction. And obviously with rates rising, many loan officers who enjoyed the constant volume of refinances, that just has gone away. And so now we're in an odd market where it's purchase-driven. Purchase markets are cyclical. So we're heading into winter here and the worst part of the cycle is coming at us.
And on top of it, I think the media is doing a really poor job of spreading what I think is disinformation about what the market's going to look like going forward and scaring people away. I would say, Casey, one thing that everybody should keep in mind is, you know, this year we're going to do about 2.3 trillion. Next year, the market will be slightly smaller, but this is the forecast of the MBA, and then it's going to start rising the following two years, which is because of, you know, people who understand the demographic wave coming our way, know that there's going to be a lot of demand for homeownership.
We're just dealing with this period while Powell tries to slow the very aggressive growth of GDP and inflation that's resulting from it, but that'll be over. The next few months, we'll begin to normalize. But the volume we're doing this year outside of 2020 and 2021, this is going to be the biggest year of the last 15 years.
We're doing more volume this year than in the last 15 years other than 2020 and 2021. Why is it no margin for you guys? Why is making a profit so hard? It's because when we got too big with too many operations staff and that's a really unfortunate set of decisions that companies are having to make, but they're downsizing operations to get the cost to produce loans lower and to there's just too many lenders.
And so that's going to all resolve itself, I think, over the next 6 to 12 months, we're going to right-size the industry and then we'll also have mortgage year for 2023, 24, 25, which are really better than we saw from the 2009 to 2019 period. So it's all a matter of perspective, but right now we just have to get through this period because I know it's painful. It makes people question their job, their career and all sorts of things.
But I assure you, on the backside of this, we're going to have very strong home purchase demand in a more right-sized industry that will bring margin back to all of your branches in the next over the next few years. So, it's this transition that's difficult. And I know right now this is particularly apropos to be talking about it.
Casey Morris: That's really interesting to hear, especially because I think when people are looking at what's happening, there is that feeling of, for a homebuyer, did I miss out? And you know, what is really happening in the industry? Things were great. There were all of these opportunities and now it feels a little bit bleaker. So, what does that-right sizing mean for, you know, for the average homebuyer? I mean, what can they expect? Are there, will there be more opportunities for them in 2023 through 2025?
Dave Stevens: Well, yeah. I mean, you know, right now it's definitely more of a buyer's market than a seller's market.
You know, the last two years, while we were rolling in mortgages and loving life as lenders, which, by the way, we tend to do better, our industry tends to do better in recession times because the Fed's usually engaged with quantitative easing to drive rates down. So that works to our benefit. So we like recessions.
Strong economies are often harder because inflation comes into the economy, rates start rising and it slows the refi side of the of the paradigm.
But for buyers, you know, we are this winter and I think the spring, the next six months are going to be probably the best months for home buyers, home purchasers that they'll see over the next several years.
And the reason why I say this is once Powell starts, rates are going to start dropping by – Mike Fratantoni, the chief economist for the MBA, predicts rates will be in the mid-fives by the end of next year, where they're 7% today.
And high rates are scaring away buyers, making sellers nervous. So, the likelihood of a seller willing to bargain with any potential buyer coming in to the market right now is actually pretty high.
So, I think there's a lot of opportunity, frankly, for any buyer coming in. But people say, yeah, but I think home prices are going to drop. And that's a really terrible risk, I think, for people to be jumping to conclusions that aren't fact-based.
And I show a slide in my presentations when I do them for Fairway that shows the history of the median home price of homes going back four decades and home values only go up. I mean, you see it just constantly rising. There are small blips when home prices go down, like during the Great Recession, okay.
But they've not only recovered from that, they went way above that in terms of value. The Federal Reserve of St. Louis, it's called FRED, you can look at the history of the median price of single-family homes and it'll show you the history going back to 1960 and home prices have only gone up. So, I think, you know, those who bet on the timing of the market will likely end up getting into it when rates are dropping, all the home buyer demand is coming back, and they'll end up being competing in a seller's market again.
I think right now, if you buy, take the 7% rate, try to get the seller to pay for a buydown, if you can, two-one or one-zero buydown to get your rate low for a year or so. But you can always refi to lower rates, but you can't get an opportunity to be in a buyer's window like this.
And I don't think we'll see one again for several years to come. So, my advice to potential homebuyers is go out and buy. Don't think you're smarter than the market in terms of timing. And I use that history slide of home prices to show it. And there's also really good data around demographics and supply that just clearly shows that home prices are going to continue to rise here.
But it's a tough one, right? Because the, you know, media, conversation at cocktail parties, you know, among family and friends, it all sounds negative. And unfortunately, those conversations typically, as well as most of the stories I read in the media, are not written by Ph.D. economists, not written by MBA graduates of finance. It's mostly written by journalists. And I frankly just think we’re sending a lot of bad information about market markets, timing, and opportunity that needs to be overcome right now.
Casey Morris: That's so interesting to hear your take on that, because that is something that I've heard, you know, just in interpersonal conversations and have seen it all over the Internet and, you know, even things that people are posting on our social media saying, oh, now is a terrible time to buy this year because there's going to be a crash and housing prices are going to plummet. And, you know, that narrative is out there. But hearing you say that's not the case, that's just not something that you should be anticipating or holding out for and then potentially missing out on a house where there's going to be more competition next year. I think that's really, really important for people to know that if that's why you're waiting, it's not a good reason.
Dave Stevens: Yeah. I mean, there's there are plenty of charts that are used by housing economists looking at housing supply, for example. And we haven't had – yes. Supply is up a little bit since June. But even at today's levels, we're we haven't seen levels this low in terms of supply, the trend line right now, housing supply available of homes for sale since the period of 1945 to 1949. I mean, it's been decades that we haven't seen this low supply.
And we also have the combination of that with the largest wave of millennials coming into their peak first-time homebuyer [years]. And those two are just basically a story about supply and demand.
Anybody who thinks it's going to be some big housing crash just doesn't understand economics and isn't looking at data. It's conjecture. And I think conjecture is dangerous at a time like this. I think data really is important to look at.
Yes, housing prices will soften. We're seeing sellers dropping their list price. And so far, 20% of the homes listed across the country roughly have seen price drops. But remember, those same sellers just went through the last two years with the average overall home price appreciation for the two-year period in this country was 34%. So, whatever they're dropping, they still made a lot of money on their homes.
And so, you know, the fundamentals of homeownership are extraordinarily strong and the fundamentals of supply and demand clearly point to the reality that there's a natural cushion right now under home values that didn't exist, for example, in the Great Recession of ‘08, when the market collapsed on unsustainable credit programs like stated income and … the kind of lending that was going on.
Also, we didn't have the demand. It was Gen-X was in their peak homebuying years. That was a smaller generation than the Baby Boom generation. We actually had a glut of homeownership demand because we just didn't have enough Americans in the right age bracket.
That's entirely the antithesis right now with the largest generation in American history, the Millennials, they're just entering their peak buying years, which is age 34, is the peak year for first-time homebuyers in this country. And we've just got a wave coming at us of potential homebuyers.
So, you know, again, I just encourage people to think about their basic, you know, microeconomics class that they took to college, if they took it, and understand that variable of supply and demand, just like it's affecting mortgage rates and bond prices here temporarily, it's also going to affect home prices and keep them up.
Casey Morris: So I was wondering if you could just put in perspective rates this year, because obviously when people were seeing rates in the twos and threes, you know, that's so rare. And like you were saying when you started in the industry, rates were in the teens. And so, this is kind of unheard of. Now that, you know, when people are seeing rates, you know, at 7% or, you know, you're saying next year they may settle around five, at 5.5%. You know, can you explain to people just sort of what that means? And are these rates actually high or is this just sort of more normal?
Dave Stevens: Yeah, I hate to tell you, I think this is more of a more normalized interest rate market. And here's the reason why. In 2008, the Great Recession hit us. It was the worst recession since the Great Depression. And so, the Federal Reserve came in under Ben Bernanke at that time, and they did three rounds of quantitative easing, meaning they eased the quantity, the supply of mortgage-backed securities in the marketplace by buying them. The Fed bought trillions of dollars of mortgage-backed securities. That created a short watch, which drove prices of the bonds up and rates down. So those three rallies were big. They drove rates down into the fives and fours.
And then we had the COVID pandemic. And in March of 2020, as you all know too well, because it blew up all our pipeline hedges for the company you work for right now and every other company in this country, because the Fed came in and did the biggest round of quantitative easing that's ever been done in history. And why? Because the COVID pandemic shut down the United States, shut down the globe. And the Fed was so concerned that the U.S. economy could tailspin in a scenario even far worse than the potential outcome of the Great Recession.
Now, that didn't happen because we, you know, no one could foresee all of the events that were going to take place afterwards. And actually, I think, as a result, we overshot it. That drove rates low. The Fed only comes in and does that to markets when we're in deep recessions. We're not going to be that way going forward in a normalized market.
Yes, we have small blips of recession here and there, but these were two kind of hundred-year recessions that we saw a decade apart. I mean, they were, they were just massive scenarios that that are unprecedented. And the Fed isn't going to come in.
So that massive short that they created in March drove rates down to the low twos. That is not normal. And so, the Fed now is engaging in quantitative tightening the other way to slow the hot economy. That's the result of us putting so much money stimulus into the U.S. economy that it also is not normal. The quantitative tightening will be short lived.
I show a slide of my presentations of the Federal Funds Rate going back to 1950, and you can see after every period of quantitative tightening, when the Fed raises rates, we typically have a recession, usually a short one. I think we'll have a short one this time and then rates drop right behind it. And so, we're going to be in that period that's going to happen here over the next six months. And that's why people are forecasting rates are going to come down.
But think about the rate today, 7%. It's the only time we've really seen rates lower than this. If you look at the history of the 30-year fixed rate loan, it's pretty much from 2008 forward because of the three rounds of quantitative easing and then the big one in the pandemic recession. And so that's just an unusual period.
Seven historically has been an outrageously low number. I would have popped champagne bottles during most of my career for a 7% loan. But keep in mind, you know, when people say, gosh, I wish I'd waited for that five and a half, you don't have to wait. You can refi. That's what refinances are all about. But if rates go the other way, you want to lock in at seven.
Everybody wants to own home. I mean, very few people want to rent their whole lives. The vast majority of Americans, we have a 70 plus percent homeownership rate in America. The vast majority want to own.
The Fannie Mae survey, the Fannie Mae Consumer Sentiment Survey shows that over 90% of Americans want to own a home. The only reason they're not buying is because they're getting pummeled with bad information. Oh, my God. Rates have soared. It's now this much more expensive.
So what? This is the rate at seven. You're not going to get three again. So, stop licking your wounds. Seven’s good. See what you can buy with it. And as a matter of fact, right now, during this one, you could probably bargain on that home sale a little bit. And again, as I said, if rates drop, that's just a plus.
But I do want to emphasize the only reason consumers aren’t pulling that lever to go buy the home right now is emotion. And I think the emotion can be overcome by showing the history of home values in this country.
The demographic slide that I always show Fairway employees, the real supply challenge facing this country. Home Builder magazine just said, we're short 5 million homes in this country for sale based on the current household formation rates.
So, you know, all of that is to say the fundamentals of homeownership are best. I think we’re just scaring the hell out of potential home buyers coming in.
Last thing I would just say is some home buyers say, well, yeah, but I think we're going to go through some form of corrections. I'm going to time the market. That's really proven itself to be a loser's bet. You know, housing always goes up. Median home prices in America have always gone up. Even if it dips during a recession, it always recovers beyond that.
So, if you're a long-term homeowner and want to be a long term homeowner, the solution is get in the market. Get today's rate. It protects you if rates go up, and if they go down, you can refi out of it.
But I don't think you'll get an opportunity to negotiate out of home starting the end of next year and into the following two years. Like you're going to get this winter and the spring.
So, you know, again, challenging time. But people who are worried or think they're going to time this market are to me similar folks who invested in the dotcom boom in the 2000s. And, you know, think Bitcoin is going to go up forever. And I just think these are risky propositions. The housing market has a proven history of ever, never-ending increases in median prices, even when there are short intermittent dips during recessionary periods.
Casey Morris: That's a really powerful message. I think that's something that people really do need to hear is kind of an antidote to these frightening headlines and articles and all of the, you know, sort of social chatter about the market and timing it.
What you just said that this opportunity that you have in these next few months, you might not have that again for several years. So don't wait. If you're ready to buy a house, if you're qualified to buy a house, go for it. Don't think that you're you need to math it out or you know, some something's going to happen a year from now that's going to make it better to wait. Go now.
Dave Stevens: Absolutely. Yeah. That is the message.
Casey Morris: Great. Well, thank you so much. I really appreciate all of your insights. Have a good one.
Dave Stevens: You, too.
Disclaimers:
The information in this podcast is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.
Copyright©2022 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. All rights reserved. Fairway is not affiliated with any government agencies. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.
Fairway is required to disclose the following license information. AZ License #BK-0904162; Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Financial Protection and Innovation under the California Financing Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License; Georgia Residential Mortgage Licensee #21158; For licensing information, go to www.nmlsconsumeraccess.org; MA Mortgage Broker and Lender License #MC2289; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; Rhode Island Licensed Broker & Lender; Fairway Independent Mortgage Corporation NMLS ID #2289 (www.nmlsconsumeraccess.org).
The information in this podcast is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.
Copyright©2022 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. All rights reserved. Fairway is not affiliated with any government agencies. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.
Fairway is required to disclose the following license information. AZ License #BK-0904162; Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Financial Protection and Innovation under the California Financing Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License; Georgia Residential Mortgage Licensee #21158; For licensing information, go to www.nmlsconsumeraccess.org; MA Mortgage Broker and Lender License #MC2289; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; Rhode Island Licensed Broker & Lender; Fairway Independent Mortgage Corporation NMLS ID #2289 (www.nmlsconsumeraccess.org).
