In the farewell address of outgoing Fannie Mae Chief Executive Officer Jim Johnson at the recent Mortgage Bankers Association’s annual convention, he pointed out that some 22 million families had bought homes in the last 10 years.
He also noted that since 1990, lenders have approved some $7.5 trillion in loan originations.
That’s more than twice the amount of mortgage originations than were completed in the 1970s and 1980s combined. At the start of the decade, the rate of homeownership in America was 63.8 percent. Now more than 66 percent of American families own their own homes.
What’s next for real estate?
The last few years have been golden, each year breaking home sales and loan origination records. This year, some 5.3 million existing and newly constructed homes will be sold, and more than $1.5 trillion in home loans will be closed.
Can these high levels be sustained? Or is the real estate industry heading for a crash similar to the one that started this decade?
Let’s look at the short-term and long-term future of the industry.
Mortgage interest rates
David Lereah, senior economist for the Mortgage Bankers Association of America, thinks 1999 will be a pretty good year for real estate. He sees the American economy growing about 2 percent, and remaining fairly stable in an increasingly difficult global economic climate.
Existing- and new-home sales will soften somewhat, he says, but given the extremely high levels they’re at today, the numbers would remain historically high.
But in about 18 months, Lereah believes there is a fair chance the American economy could settle into a recession due to external forces.
“There’s nothing fundamentally wrong with our economy,” Lereah said, adding that if economies fail around the world, there is only so long the United States can maintain an economic expansion.
If the country goes into a recession, home prices will start to fall. In fact, Lereah said, prices are already starting to fall in some high-priced neighborhoods around the country.
Sellers are noticing it’s taking longer than, say, 5 minutes to receive an offer and are starting to lower their list prices to generate more interest.
On the other hand, Lereah believes we’re entering an era of long-term, stable low rates, which could drop even lower than they are today and stay there for the next four to five years.
Low interest rates could continue to propel homeownership in this country even during a mild recession, industry observers believe.
Technology
Ten years ago, the Internet as we know it didn’t exist. Five years ago, you could hardly find good information.
Applying for a loan online seemed a distant dream.
Today, you can shop for a home or a loan online. You can compare several lenders through a home mortgage-shopping service, apply online and get approved within a few minutes.
What will the next generation of technology bring? The process of shopping and applying for a loan should become easier and much less expensive as the technology behind the scenes (in the lenders’ and secondary underwriters’ offices) becomes more adept.
In 10 years, it may well be possible to buy and finance a house online, including an electronic closing, in which you video conference with your attorney and then sign your name through your computer screen.
Your signature will be automatically “fixed” onto all the closing documents.
Is the Internet the key to the future of real estate? Could be, as long as real estate and mortgage companies remember that the focus of their Internet activity must benefit the consumer first.
