Lenders: Take a Dip in the Homebuyer Pool

Posted By Bernard Nossuli on May 26, 2016

Houses can’t buy themselves. Low interest rates can’t shop for homes to buy. Available credit won’t spontaneously buy homes. Low housing prices don’t buy homes. Secondary markets by themselves don’t incent people to buy homes. Big inventories can’t write a check for the mortgage. Households buy homes. And if households don’t buy homes, then mortgages aren’t originated.[i]

The quote above appeared in a 2011 Mortgage Banking article (read the article here). It was as true then as it is today. Households still buy homes. And only those households that are ready, willing, and able to buy or finance a home generate mortgages in the next 12 months. These are the households that are the basis for our mortgage forecasts into 2016 and beyond. 

Some data sources estimate there to be 121.8 million households in 2016. As the Mortgage Banking article mentions, these households can be partitioned into three groups: 1) homeowners with a mortgage, 2) homeowners without a mortgage, and 3) non-homeowners. However, in each partition, there are households that are not ready, willing, and able to generate a mortgage. These households are disqualified for numerous reasons, as captured in Figure 1. This fourth partition falls entirely outside of the 2016 Homebuyer Pool.

iEmergent Homebuyer Pool 2016
Figure 1. Quantifying the Homebuyer Pool. Click to view the image larger. 

Therefore, when considering the entire population of households that could generate a mortgage in 2016, one-third or 39.5 million are removed, leaving 82 million households in the Homebuyer Pool. What’s interesting is that since 2011, the Homebuyer Pool has actually gotten larger (70 million in 2011 vs 82 million in 2016). The portion of households out of the homebuyer pool in 2011 was actually 47 million, comprising 40% of total households (118 million). The main reason for the decrease from 2011 to 2016 are 8 million fewer loan mods and workouts (11.2 million in 2011 vs 3.2 million in 2016).

Again, as the article concludes, as the pool shifts over the next few years, all lenders will continue to need origination, relationship, and sourcing strategies that are more forward-looking and backed up by hard evidence.

[i] Hedlund, Dennis.  Everybody Out of the Pool (Mortgage Banking, December 2011), 46.  

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