As 2021 has now drawn to a close, it’s natural to reflect on the events of the past year, and what a year it’s been. From a presidential inauguration to mass protests, COVID vaccines to new COVID variants, Olympic games to Squid Games, and everything in between, things were… eventful, to say the least.

The housing market was no exception to the rule. Ups, downs, and uncertainty created more volatility than usual, while demographic shifts and the ongoing COVID pandemic fueled some tectonic changes in the way lenders, especially, do business.

We could, of course, offer up a listicle of figures, but if there’s one thing people in this space know, it’s that data is most valuable when contextualized. So we’ve broken down statistical revelations, market trends, and what it all means for those in the industry today and moving forward.

Where are the Housing and Mortgage Markets at Today?

As of 2021, 65 percent of Americans were homeowners, but only 37 percent of homes were owned free and clear, resulting in a total mortgage debt level of $16.96 trillion for the country. Historically low rates have fueled an ongoing surge in applications for refinancing. While data for the past year is not yet reliable, the numbers doubled in 2020 from 2019, and that trend is expected to be reflected in the final 2021 numbers should rates stay within a given range.

Even so, growth may not have been as robust as anticipated. A reported 75 percent of Americans believe it’s harder to buy a home today than it was 25 years ago. While 2020 had 2.38 million first-time buyers - the most in available data history - 2021 got off to a rocky start. Though the final numbers are expected to be strong, analysts have backed off of predictions made at the start of the year. Predictions were likely undermined by labor market struggles and a tight housing inventory. Inventory dropped by 29 percent in 2020 as skittish sellers waited for better odds, and new home supply levels are at the lowest point since measurement started in 1982.

The more curious slowdown has taken place in refinancing. Over 74 percent of homeowners have not yet refinanced, despite the historically low rates. Half of these individuals have not even considered refinancing, while 24 percent believe it to be too much of a hassle. This is complicated by a poor understanding of what could be at stake. Recent data shows that 38 percent of homeowners don’t know the current interest rate they are paying - a number that jumps to 54 percent among Millennials.

All in all, the marketplace has found itself between the competing influences of a pandemic, favorable interest rates, low inventory, and poor understanding of the processes involved with securing a mortgage. These factors have combined in a way that makes the entire experience of getting a mortgage more important than ever.

How Consumers are Experiencing the Mortgage Application Process

Applying for a mortgage doesn’t exactly have a reputation for being an enjoyable experience. Though much has changed since the days of handshake deals, the process can be complicated and anxiety-inducing. The median down payment for first-time buyers is roughly 7 percent of the purchase price, with 38 percent of buyers indicating that this is their biggest obstacle to securing a mortgage.

Credit scores come in second in terms of worries about being approved for a mortgage. The average credit score minimum for a conventional mortgage is 620, but all told, the average credit score of those approved for a mortgage is 780. Given that the average credit score for Millennials - the cohort that currently accounts for 37 percent of all home purchases in the U.S. and 28 percent of all refinancing - clocks in a hundred points less than that, it’s no wonder that credit concerns weigh so heavily on the minds of would-be mortgage applicants.

Such anxieties often make up the cornerstone of what can be an emotionally charged decision. The number one reason people buy a house is the desire to own a home, and 84 percent say homeownership is a personal priority for them. When you layer such motivations with the fact that 17 percent of buyers lament the amount of paperwork as their biggest challenge and 15 percent of buyers say that understanding the basics of the process is the hardest part of it all, it’s no surprise that investing in simpler processes has become increasingly important to lenders.

This is best exemplified by jumps in financial technology investment. Over the past five years, roughly 50 percent of lenders have increased their annual spending on mortgage technology per loan by more than 2 percent. It is expected that this number will remain about the same for the five years coming - reflecting not a lack of demand but an increase in efficiencies.

Is Financial Technology Worth the Investment?

The opportunities provided by advancing financial technology in the mortgage space are many. The amount of applicants leaning on financial technology has increased by 25% during COVID and digital lending is expected to increase to $20.6 billion by 2026.

It might be tempting to write this off as a result of the pandemic, but customer surveys about their experiences and preferences paint a different picture. An estimated 49 percent of homebuyers preferred online applications to in-person transactions in 2020, but more recent data shows that as much as 60 percent are open to fully online transactions and 70 percent explicitly prefer online document transfers.

This data becomes even more relevant when considering demographic shifts. Millennials, in particular, are considered digital natives and have high expectations in terms of digital competency from the brands with whom they do business. As they become a larger and larger cohort among mortgage applicants, digital solutions will be expected as the norm - not the exception.

How Financial Technology Can Change Your Business

The ugly truth of the matter is that the mortgage world has not evolved quite as quickly as other spaces in recent decades - especially as it relates to technology and data. Most lenders do not have a reliable method for tracking data, and it’s even rarer to see the collection and analysis of key performance metrics automated and contextualized. Data entry remains a largely manual process.

Such labor-intensive systems can reduce productivity, increase customer acquisition costs, augment overhead, and ultimately eat away at the bottom line. Leveraging cutting-edge technology can decrease the amount of time it takes to centralize such information and move the process forward, directly lowering your costs.

The proof is in the pudding. A whopping 99 percent of lenders in a recent survey indicated that they believe financial technology holds the key to simplifying and speeding the mortgage application process.

Moreover, these efficiency improvements can bolster your brand authority. The consumer experience is also elevated by streamlining operations on the backend. Financial technology can decrease processing time by ten days… which is a particularly significant metric when considering that customer satisfaction drops by 15 percentage points when it takes more than ten days to issue a decision. Happier customers mean greater respect for the brand and an increased likelihood of referrals.

So... What's Next?

The outlook for lending in 2022 is a bit of a mixed bag.

There seems to be a general consensus among analysts that rates are likely to increase in the first half of the year. In the short term, that may lead to a surge in mortgage applications among savvy buyers hoping to capitalize on what they feel is a limited opportunity. They may, however, be stymied by low existing inventory.

Should rates be increased significantly, there may be a dip in loan originations in the second half of the year. This is of particular concern as labor markets are still in a state of flux. While November’s 4.2% unemployment rate is a far cry from the 14.8% seen in April of 2020, these numbers are not necessarily reflective of purchasing power.

The estimated median income in the U.S. has increased 0.6 percent in 2021, from $78,500 in 2020 to $79,900. On face, that might seem like good news, but looks can be deceiving. These medians are established by accounting not only for the incomes of not only legal adults but any working individual over the age of 15.

It’s not just the combined paychecks that matter, but how far those paychecks can stretch. Inflation jumped to 6.8 percent in November - the highest level since 1982. While data suggests that pay raises year over year are likely to be over 4 percent. Factoring in inflation, though, real wages are down 1.9 percent year over year. Even the Social Security Administration gets it, raising 2022 benefit levels by 5.9 percent.

In the meantime, it is estimated that roughly 13 percent of American adults are living at or below the poverty line… and that can seem like a generous estimate. The poverty line sits at just $26,500 for a family of four in 2021 according to an algorithm that is widely considered deeply flawed.

In other words, there are certainly signs of economic recovery in the mix, but unless purchasing power improves, the surge in home buying, mortgage applications, and refinancing over the past couple of years may slow substantially.

Questions about these trends are made complicated by the persistence of the COVID-19 pandemic. The emergence of the Delta and Omicron variants in 2021 highlights the fact that we are not out of the woods yet. Omicron, especially, is believed to be more contagious than other iterations and may not be prevented by available vaccines. Should the Omicron transmission rate increase or a new variant appear, the likelihood of further shutdowns and an uptick in unemployment may increase.

For lenders, this uncertainty makes investing in financial technology particularly smart in the coming year. The data suggests a desire for technology-enabled application processes in general, but COVID’s continuing threat makes it necessary, both as a health precaution and as a means of running your business leaner and meaner during turbulent times.

Ready to find out how Floify’s financial technology can help you in 2022? Reach out today to learn more about the associated benefits and how to get started.