Why Is Homeownership So Unaffordable?
December 17, 2023
Why Is Homeownership So Unaffordable?
Homeownership affordability is the worst its been since 1985 when interest rates were almost 14%. The demand and intensity of owning residential real estate has attracted some of the largest hedge funds in the world, including Blackrock.
If you’re wanting to buy a home, you might be wondering why it’s so expensive to do so. From insurance to interest rates, buying a home has hit historic levels of unaffordability.
While there are too many things that have happened to the housing market bringing us to this point, we’re going to cover the three primary forces that have created this unaffordability monster of a real estate market.
1. Lack of MortgageTech Innovation and Adoption
Lenders are their own worst enemy. They have nobody to blame expect themselves for reduced margins, file defects and cures, and a horrible customer experience everyone complains about. With every major market downturn, mortgage companies fall further and further with innovation and new technology. Had lenders modernized their processes and technology so that it aligned with the modern mobile era, they’d be a lot better off today and would be able to manage these market cycles a lot easier with fewer layoffs.
All lending processes are built around humans to manage data and complete tasks.
Because of this, mortgage tech is built to fulfill this human-centric design philosophy. The mortgage industry can’t get out of its own way, and is the only one stopping itself from moving forward. Dodd-Frank is not to blame. No lender wants to invest in new technology or processes that will eliminate their now job. Out of self-preservation, everyone likes it this way. No one wants to get replaced by new tech, processes, or automation. And no one wants to willingly cannibalize themselves to automation.
The historic human centric designs of today are what’s keeping the mortgage industry from moving forward and saving bottom line money for the lender and customer. Furthermore, the negative impact it’s having on the customer experience is obvious: the mortgage industry is the last remaining multi-trillion dollar market yet to have its Uber moment. As of today, there’s no mobile mortgage that carries the customer end-to-end on their phone, in an app, without a loan officer or processor needed to do something.
Until the human design and technological dependency is replaced with automation and an equally trusted decisioning protocol, the mortgage experience will lag behind every other area of mobile consumer finance.
But not all hope is lost. The greatest innovation often comes from the greatest pains of a market. And this is no different. At Bee we’ve built an app that uses AI and blockchain to automate data, data that a loan officer and processor would be used for at every other lender in America.
Blockchain is robotics for the office worker and will do to the office worker what robotics did to the assembly line. By eliminating the 1st and 3rd biggest cost to originate a loan—the loan officer and the processor—Bee will be able to originate loans at a 1/3 the cost of other lenders. These cost savings will result in lower rates and fees for home buyers, instantly making homeownership more affordable for everyone.
But the coolest feature of our new app is the user experience, how easy it is to use, and how it reminds people of Uber, Venmo and Netflix.
Bee is different in two key areas, the mobile-centric design and data automation.
A Mobile-Centric Design Philosophy
Instead of a design philosophy around people, Bee is built around the user of the app, the mortgage customer. By answering some easy questions and following simple prompts, the UX with Bee is unlike other digital mortgage products that simply capture form field data to be proceeded by a loan officer later. Once the data is input by the borrower via the app, it’s processed automatically by Byrdie, a custom-built intelligent loan processing application.
Bee can fully pre-approved a home buyer in less than 8.5 minutes with verified income & assets = 300% faster than Rocket Mortgage.
#1 cost to originate a loan: The Loan Officer [eliminated with Bee’s mobile app]
Because the home buyer interfaces with the mobile app and not a loan officer, a single borrower can get pre-approved entirely on their phone in less than 8 & 1/2 minutes, with verified income and assets, 24/7. This type of mobile on-demand mortgage service is poised to serve and entire generation of home buyers who use their phones for every part of consumer finance, except getting a mortgage. The next generation of home buyers, Gen Z, is the first mobile native generation that grew up with the iPhone.
Data Automation
In order power Bee’s new mobile-first design, mobile mortgage data must be designed around automation in four key areas, not a loan officer or processor.
- Electronically Sourcing Borrower Data
Credit, income, assets, and tax data is verified electronically so that the borrower doesn’t have to send in statements, paystubs, or sign certain docs. This happens in an instant after the customer synchs up access to their bank account and employer for income. While these services are widely deployed in the mortgage industry now, what makes Bee different is that the data is automatically processed once received without any loan officer involvement, unlike every other lender in America. - Underwriter-to-Borrower Process Flow
All lenders use processors or mortgage brokers to relay underwriting requests to the borrower. There are many requests underwriters make before closing. Bee has eliminated that need by having the underwriter push out requests to the borrower through the app. The app acts as the go-between and alerts the borrower of things they need to do.
Current process flow: Underwriter - to Processor - to Customer
Bee’s new process flow: Underwriter - to Customer
• #2 cost to originate a loan: The Processor [eliminated with Bee’s mobile app] - Smart Contracts
In addition to the underwriter and/or automated underwriting systems, loan officers have historically acted as the trusted decision maker for loan applications being processed for pre-approval.
Verifying data for:
- Credit score(s)
- LTV (loan-to-value: verifying sufficient assets needed to meet LTV loan requirements for approval)
- DTI (debt-to-income: verifying sufficient income to meet loan DTI requirements for approval)
- Loan product data
Current process: Loan Officers confirm borrower qualifies for pre-approval.
Bee’s new process: Smart contracts auto-execute a pre-approval once qualifying conditions have been met with electronically sourced data. - AI
Current process: Lenders use processors to manually review documents received from customers before they’re reviewed by the underwriter.
Bee’s new process: AI software reads documents to make sure they meet the underwriter condition before they’re reviewed by the underwriter.
• #2 cost to originate a loan: The Processor [eliminated with Bee’s AI technology]
This new tech is slated for release in 2024.
Pro Tip: There’s not much you, the borrower, can do about a mortgage company’s lack of innovation with new technology. Ultimately, for you, a low rate and good service is most important. In the end, the customer experience comes down to the skill of the loan officer and processor managing your expectations property, and, most importantly, their ability to solve problems quickly without you knowing.
Most people don’t realize a good mortgage experience until they have a bad one. A customer once told us, “I didn’t realize how good you were until I got a mortgage with another company!” That’s a compliment and when we open New Hampshire, we’ll get them back.
2. Interest Rates
While everyone enjoyed the good ole days of 3% mortgage rates, no one thought about the famous counter effect to Isaac Newton’s famous quote, “What goes up must come down.” The effects of pumping 60% of the money supply ever created into the economy in a short period of time are still being felt today in higher cost everywhere, from mortgage rates to gas and groceries.
The Federal Reserve had no other choice but to drastically raise rates or we’d experience a total debasement of the dollar and end up like Venezuela. Yes, nobody likes a 7% mortgage when they were just 3%, but people would hate a $500 Big Mac and $400 gallon of milk even worse.
Pro Tip
Shop Around: Ask the lender if that’s the best they can do. Let them know that if you’re shopping around and if you find a lower rate, you’re not going to come back to see if they can match or beat it. So, they better give you their best rate now. Lenders can make concessions and lower rates, if they want, in order to win business.
In light of today’s higher-than-what-we’re-used-to rates, it’s always a good thing to ask. The best thing to do is get quotes from three different lenders. Then, ask Lender 1 one if they can beat Lender 2; then take the best rate and ask Lender 3 if they can beat that rate Everything in life is negotiable; and spending a couple hours doing this can save you thousands of dollars later.
Buy Points: Buying points are not a bad thing. It’s like pre-paying interest at a discount. When you buy points, you pay more money at closing for a lower rate. The lower rate gets you a lower monthly payment, along with overall repayment savings over the life of the loan. While points have got a bad rap due to lenders using points to try and win business with a low rate, they’re not bad at all—so long as you know you’re paying points, and want to.
Lot’s of people don’t buy points because if rates go down they plan on refinancing and don’t want to waste the money on points. The problem is that no one knows what rates will do.
Seller Concessions: If you’re buying a home, your real estate agent can negotiate with the seller to get you some seller concessions. Seller concessions is money the seller gives you to cover closing cost. The savings of which can be used to buy down the rate with points. And while a seller cannot give you money to buy points with, they can help you cover closing cost, which equals the same savings. Since there is no seller in a refinance, this isn’t an option if you’re refinancing.
3. Inventory
Inventory is at an all-time low. People are staying in their homes more than ever. With more than 90% of homeowners having an interest rate of 6% or less, no one wants to sell right now. Think about it: If you’re a current homeowner who refinanced in 2020 into a 3% or 4% rate, why would you want to sell and buy again? You’d lose your low rate and pay double the interest rate and double the price for the new home.
Along with the COVID based rise in popularity of remote working, people are pushing back against relocating for a new job or promotion. In fact, relocation lending volume is way down compared to pre-COVID levels.
Conclusion
When you’re ready to buy, go ahead and buy, even if prices and rates are high. After all, you buy a home for your family’s comfort and peace of mind. It’s a place to make memories in; and those memories are invaluable. If rates drop after you buy, simply refinance into a lower rate. We previously talked about the benefits of refinancing and how you can possibly save over $100,000 - even with closing costs - when you do a streamline refinance with Bee.
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To see if you qualify for a streamline refinance, contact Bee at 855-626-1999 or apply here today!
If you’re ready to make the leap into homeownership, contact us today! Our dedicated loan experts will walk you through every step of the way ensuring you get a low rate and close quickly!
If you’re looking for a streamline refinance to lower the rate and payment, apply here today or call 855-626-1999 and speak with one of our expert loan officers in your area!
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Bee is a leading Florida mortgage broker with over 10 Florida local offices that’s been featured heavily in the local and national news for its instant pre-approvals, low rates, fast closings, and new mobile technology. For more news and resources, click here.
