By Christian Thompson
Receiving mixed economic news can be confusing. Is there a new dawn rising?
This past November, the title industry saw a 20% decline in title insurance policies written. Furthermore, the WSJ just posted an article that November brought in the 10th straight month of declines in U.S. home sales. Despite this, Americans are finding some optimism within the current economic climate as consumer confidence data jumped up sharply in December 2022 to its highest level since April of last year due to easing inflation. The good news is that the real estate market should rebound when inflation is under control and rates are reduced. Maybe not back to the days of 2-3% interest rates, but enough to move the needle in a positive direction.
In the meantime, how do those in the real estate and title industry read into the tea leaves of the housing market to position ourselves to weather whatever 2023 may bring?
Today, we will discuss two scenarios one can glean from the current economic climate.
1. Some buyers are waiting it out, hoping for improvement in 12-18 months.
November 2022 home sales approximated the same as May 2020 sales, which occurred during the peak of the lockdown. The Pandemic had a similar macro effect on housing sales than higher interest rates. How can that be? The impact of the Fed raising interest rates seven times in 2022 caused buyers to find themselves priced out of the home-buying process, with mortgages costing hundreds of dollars more per month. This is obviously causing many to wait to purchase homes for another year. Of course, a slowdown in first-time buyers negatively impacts those looking to upgrade.
These buyers’ effect creates a pent-up demand that will spring when things return to normal. In many geographies, there is a housing shortage. It’s not a lack of need; it’s the cost that concerns such buyers. How quickly will this rebound when many in the industry are hemorrhaging? In the near term, title agencies must watch costs yet be nimble in responding to demand. This is often where the rub is: Agencies may make drastic moves to survive, including reducing their workforce, yet risk not having critical staff when things turn north.
2. Some prospective buyers are pulling the trigger and buying.
The average 30-year fixed-rate mortgage fell to 6.31% from 7% at the beginning of November, per Freddie Mac. As a result of interest rate hikes, homebuyers are finding opportunities in some markets for purchasing. This is seen in coastal regions where the inflated home values of 2020 – 2021 showed signs of cooling as competitive bidders qualified for loans fell off.
With each decline in interest rates, we’ll likely see more people qualifying for loans and buying. But if you’re in a highly coveted geography where home prices are high, and the percentage of buyers are financing, the chance of a 6.31% rate bringing in droves of buyers is less likely than if you’re in geography where prices are falling. The cost of the home, a lower rate, and available inventory are all interrelated factors. For many title agencies in higher-priced markets, the news here is promising but may not to instill the confidence that a quick turnaround is happening. The concerns for staffing and cost controls linger.
Between these two scenarios, it boils down to putting yourself in the best position to respond to demand and give excellent service while maximizing profits.
Be Ready when the deals come with the right processes and partners.
We live in a market of ebbs and flows, where regional differences can be vast. Orlando, Florida, is very different than Portland, Oregon. Some buyers will continue waiting for smoother waters to traverse when pulling the trigger. Others are moving forward now, assuring business in 2023. They see the net/net balance of interest rates, home prices, and inventory to work to their advantage.
What can you do to be ready and not flat-footed? Agencies can build a more flexible business model toward title production, becoming more of a variable cost versus fixed. You pay as you consume it. Focus on what you do best around selling your services and building relationships while leveraging “as a service partner” to fill in your workflows. That can include title research, examination, commitment preparation, and post-close services.
During lean times, there is time to “re-gear” or tweak your business model so that when things turn up, you’re in the best position for profitable growth. As title production needs arise, having the right partner to streamline workflow and processes can give your team the competitive edge for success.
This is a great time to leverage a partnership with Action Title Research. ATR is prepared to support you with title production needs and make your operations more streamlined and efficient. All of this is completed with our advanced workflow systems and local experts. We strive to provide our customers with a superior product that reduces the risk of errors and time delays.
We’re specialists in New England with an on-the-ground presence combined with technology that makes it far more economical, faster, and easier to secure title data that integrates tightly with the leading title production software.
Don’t be caught flat-footed when new opportunities arise. Reach out to us to learn more.
VP Business Development
As Action Title expands to include the Northeastern Corridor, we can now capitalize on our 20 years of experience and infrastructure in the real estate industry. I am looking forward to bringing my passion for market analytics, and larger real estate trends to help you meet your goals. As the industry continues to move away from an analogue approach to a fully integrated digital product, I have never been more optimistic about the future of our industry. With Action’s investment in title search and delivery technology, we are more prepared than ever before to help you grow and succeed to meet whatever demands you may face.