Low rates, reduced supply and sustained activity for mortgage lenders
By Mark Morris
When COVID-19 first arrived in Western Mass., It was in mid-March, just weeks before the traditional home selling season began. Mortgage professionals in the region weren’t sure what to expect when the pandemic hit, but they certainly weren’t expecting a solid year.
Soon, however, they had to adjust those expectations and projections.
Indeed, a combination of factors, ranging from historically low interest rates to high demand and low inventory, made this year a much busier and better year than most residential lenders and home sellers. could have hoped during the dark days of March.
Indeed, instead of completely wiping out the spring home buying market, the pandemic simply postponed it, said James Sherbo, senior vice president of consumer loans at Holyoke-based PeoplesBank.
“We’ve been very busy because the activity that we would normally see in April or May, we saw it in June, July and August,” he told BusinessWest.
Jeffrey Smith, vice president and director of loans at Freedom Credit Union, confirmed that any debilitating effects of the pandemic on the housing market have been more than offset by falling interest rates. Rates were already quite low – between 3.25% and 3.5% – before the pandemic, he said, but consumers can now get a 30-year fixed-rate mortgage for well under 3% .
“We have been very busy because the activity that we would normally see in April or May, we saw it in June, July and August.”
“It’s probably the best real estate market I’ve seen in years,” Smith said. “When the pandemic first hit, I thought it would be quite the opposite. “
Meanwhile, many mortgage holders are taking advantage of these lower rates to refinance themselves, and this high volume of refis, as they are called, occupies most lending institutions.
“It’s crazy… we’ve seen an 80% increase in the volume of our overall business from last year,” Smith noted. “And we certainly weren’t expecting that. “
Tami Gunsch, senior executive vice president and director of relationship banking at Berkshire Bank, agreed. She said the bank was pleased with the performance of the mortgage division, “especially in these unprecedented times of COVID-19.”
For this issue and its focus on banking and financial services, BusinessWest takes an in-depth look at the housing market and the diverse and powerful forces that drive it.
Parts to improve
Returning in mid-March, Sherbo said his service focused primarily on where (and how) team members would work and the safety of employees and customers.
“We just tried to prepare as best we could to keep our team and our customers safe,” Sherbo said. “When COVID-19 first hit everyone wondered what would happen; no one had a crystal ball.
Indeed, no one could have predicted how lower interest rates – one of many measures taken to stimulate the economy – and other factors would work together to stimulate virtually every aspect of the housing market and create a unique set of circumstances.
Home sales are strong, again, due to low interest rates even though fewer homes are for sale, Sherbo said, adding that he cannot recall a time when the two conditions came together. are produced at the same time.
“It’s probably the best real estate market I’ve seen in years. When the pandemic first hit, I thought it would be quite the opposite. “
“I’ve seen rates this low before, but I’m not sure we’ve seen this lack of supply for a long time,” he said, adding that it was no surprise that many people do not want to move or sell during the pandemic, so the supply of homes for sale is limited. This creates an environment in which many offers to buy are above the asking price.
“The new listings are selling out very quickly,” Smith noted, adding that almost all of the homes offered for sale in early July were sold in early August.
In addition to people leaving the city and settling in the suburbs to take advantage of low interest rates, Smith said demand for second homes is skyrocketing.
“In the last three to six months, prices have gone up 20% or more in areas like Cape Cod or Maine,” he noted. “Second homes are a booming market right now, and with limited supply, properties are only on the market for a short time before they are sold. “
Then there is the refi market.
Gunsch said that in addition to a strong new mortgage business, Berkshire Bank has a high volume refinancing business.
“Refis represents 52% of our production of closed loans until July,” she said, “whereas the previous year, during the same period, they represented 35% of the volume of closed loans”.
Smith added that, thanks to the strong business Freedom is doing with loan refinancing, he does not anticipate the lack of housing supply to limit the institution’s growth potential this year.
The strong home selling activity is even more impressive considering how quickly the entire home buying process must have changed when COVID-19 hit.
The idea of a real estate agent walking potential buyers into a home for sale seems almost odd these days, as virtual tours have replaced tours and car tours of a home have become the norm.
“People buy homes based on what they see online,” Smith said. “A lot of people don’t even go home to see it. In some cases, especially for second homes, they buy them on sight. “
Before COVID-19 hit, Smith said Freedom had limited ability to apply for a mortgage online, but the virus forced the institution to do everything quickly.
“Fortunately, we had the technology to be able to quickly adapt to the Internet alone, so we were sort of ready for that,” he told BusinessWest.
PeoplesBank launched its paperless mortgage application system in October 2019 after two years of refinement. When COVID-19 arrived and disrupted daily life so much, Sherbo said having a contactless system already operational made it easier to maintain activity levels.
“Our clients don’t need to meet or sign anything in person,” Sherbo explained. “The entire application process can be done online or over the phone. We were ready for it which was great.
Gunsch said Berkshire also uses an online application process. When a property appraisal is needed, only the exterior is appraised to reduce physical contact.
“Loan closings are always done in person, everyone wears masks and follows social distancing guidelines,” she added.
A serious concern at the start of the pandemic was the possibility of mortgage defaults increasing due to homeowners affected by financial and health problems. In April, Governor Charlie Baker promulgated a moratorium on consumer deportations and seizures until March 2021.
Meanwhile, those struggling with COVID-related issues are encouraged to contact their mortgage holder to defer payments. The law makes it clear that by postponing, consumers are simply extending the term of the mortgage without damaging their credit rating.
Every mortgage professional BusinessWest spoke to said the deferral program has reduced defaults and allowed people to stay in their homes.
“We have a strong team in place to help our borrowers defer their loans and make sure they understand their options to defer payment during that time,” Gunsch said.
Smith said about 5% of Freedom mortgage holders have taken advantage of the deferral program. “We are actually seeing our defaults at very low levels, lower than they have been for years.”
Smith added that most of the postponement requests took place in April and May. With each passing month, the number of new postponements continues to decline.
“The deferral program is working as intended,” Sherbo added. “It gives people the chance to maintain their own stability and their own credit. “
When it comes to stocks, even that picture could improve soon. A recent report from the US Census Bureau and Housing and Urban Development (HUD) showed that new home construction starts increased by more than 23.4% in July 2020 compared to July 2019. The national figure reflects closely the Northeast, which saw a similar increase of 23.3. %.
Locally, Sherbo said new housing starts are relatively stable, but if interest rates continue at record highs, it will encourage more new construction in Western Mass.
Just like no one had a crystal ball in March, none of the mortgage professionals we spoke with can really say what will happen in six months or a year. That’s the nature of this pandemic – a high level of unpredictability.
For now, the housing market is booming at a time when few thought so. This is good news for banks and credit unions – and the customers they serve.
And it’s definitely one of the most intriguing stories of the year, never ending.