We all know the critical role data plays in the mortgage and real estate ecosystem: powering decision-making, reducing risk, improving productivity, and fine-tuning marketing strategies. As we prepare to finish out 2023, let’s consider how players across the mortgage, financial services, real estate, and proptech sectors might leverage data and data-driven solutions to prepare for 2024.
Mortgage / Financial Services Sector
This past year presented significant challenges to the mortgage industry:
- Over the course of the year, the average mortgage rate climbed to nearly 8%, the highest rate our industry has seen in more than 20 years.
- Tight inventory pushed up home prices throughout 2023.
- The combination of higher rates and fewer, more expensive homes reduced affordability to a three-decade low.
However, on a more positive note, the Mortgage Bankers Association (MBA) is forecasting a better year in 2024, with overall volume climbing by 19% to $1.9 trillion. Many of the lenders I spoke with at the recent Mortgage Bankers Association (MBA) Annual conference in Philadelphia were focused on finding new, creative ways to grow first mortgage volume while reducing costs. They were also exploring alternative products such as reverse mortgages and HELOCs to replace volume to keep their best people busy until the market returns.
Client Acquisition Tools
Historically, the industry has relied on hiring staff, particularly loan officers, to grow market share, but there are signs that this is changing. What we’re also seeing now is greater interest in using data to improve customer acquisition and to make strategic business decisions, like expanding into new markets or making acquisitions. For example, there has been an uptick in interest in propensity scores to identify would-be buyers earlier in the client acquisition process. Similarly, lenders considering new markets or acquisitions are using industry data to size market opportunities, scope out the competition and even begin the process of evaluating potential acquisition candidates.
As we have discussed in previous blogs, for the foreseeable future home equity lending will continue to be an opportunity for lenders that have portfolio capacity and/or the ability to sell or securitize these assets. In 2024, lenders will continue to use data-driven valuation products to identify the best prospects either within their portfolios or in their markets. Increasingly, the next generation of Automated Valuation Models (AVMs) have versions specifically developed for portfolio analysis and marketing purposes.
In addition to home equity, alternative loan products like reverse mortgages, manufactured housing and PACE loans, are expected to gain traction in 2024. Because these alternative lending opportunities require timely and accurate data to identify and vet prospects, we expect this will lead to increased use of AVMs and ownership verification solutions to support these marketing efforts.
While home equity and other alternative loan products have the potential to replace some of the volume loss that lenders have experienced recently, they also tend to have smaller loan amounts and thinner margins. As a result, lenders will be looking for solutions that deliver greater efficiency and require less expensive settlement services.
Risk Management in A Dynamic Environment
Credit and collateral risk are always priorities for lenders, regardless of market conditions. Fraud for housing, for example, tends to increase when, as now, affordability is low and home prices are high. Undisclosed debt, income misrepresentation, occupancy fraud, and involuntary liens will be areas of focus going into 2024, increasing the use of specific datasets to improve loan quality and mitigate these risk categories.
Likewise, safely originating home equity and reverse mortgages requires accurate assessments of both valuations and lien positions. This is particularly true in super-lien states, where we expect an increase in HOA and involuntary lien data usage.
Real Estate Sector
The real estate sector, like mortgage, faced headwinds in 2023 due to affordability and inventory issues. Like the MBA, the National Association of Realtors® (NAR) is also forecasting a better year ahead. Having said that, however, competition for listings will still be intense given the lack of inventory.
Larger brokerages, like their lender counterparts, will be testing new data solutions to identify those who may be prime candidates for moving up (freeing up much-needed lower-tier inventory) and downsizing (freeing up larger square-footage properties for growing families). Metro-level price-tier data, such as what’s included in our new Home Price Index, will also help real estate firms develop more precise comps for starter, mid, and luxury-tier properties. The currency of our HPI data, which leads the market by a month, will help users identify market fluctuations like the ones the market experienced last year when, at times, prices turned down and then rebounded.
New construction has fared better than existing home sales this past year, and it is expected to continue to be a bright spot given the country’s long-term need for housing. We expect that savvy real estate agents will use data to help builder clients identify development opportunities and lock in long-term relationships with them.
The prevailing wisdom in early 2023 was that proptech, as a category, had a serious funding challenge: investors were pulling back and innovative funding concepts, like Special Purpose Acquisition Companies (SPACs), were shutting down. But the prevailing wisdom, as is often the case, wasn’t entirely accurate. As my colleague Chris Flynn shared after attending this year’s Blueprint conference, the proptech model is shifting from scale to profitability and there continues to be significant interest in and investment available for start-ups and later-stage companies that can demonstrate a path to profitability.
“When you look at the types of data that play meaningful roles in the fintech and proptech spaces, they are very often aggregated from disparate sources and manufactured, so understanding how the data from those disparate data sources are linked is a foundational step,” said Flynn. “Understanding how to use these millions of images or data attributes and how to QC them, link them, and normalize them into a standardized, easily consumable format is a top priority in establishing a successful advanced data analytics strategy.”
When you stop to think about it, the very essence of proptech and fintech firms comes down to leveraging data and technology to eliminate pain points or to address previously unaddressed opportunities.
In 2024, these opportunities will include more efficient digital management of single-family and commercial properties, including leveraging parcel data with additional property data attributes, such as commercial tenant data, recorded mortgage data, and county assessor information. Based on what was presented at Blueprint and discussed at MBA Annual, some of the new products that proptechs will be focused on include Home equity investment and shared interest solutions, mortgage assumability, and others.
We’re anticipating that 2024 will bring new opportunities and more stability to the mortgage and real estate sectors. But whatever is ahead, you can be sure that data and technology will help us prepare for it.