New home sales, to the surprise of many, rose by 5.8% in November to a seasonally adjusted annual rate of 640,000, according to data published by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD) on Friday.

New home sales data last month was much stronger than had been anticipated; the market had expected a contraction of 4.7% in November. The median sales price of new houses sold last month was $471,200 and the average sales price was $543,600, according to the data.

A combined dip in mortgage rates and significant incentives from homebuilders was the driving force last month, analysts said. But make no mistake, conditions are still sub-optimal and the new home sales data doesn’t capture all of the headwinds, such as declines in permitting and cancelations.

“Despite the modest uptick in contracts signed on new homes, the housing market remains in a lull, a pattern that likely will continue as we head into January,” Lisa Sturtevant, the chief economist of Bright MLS, said in a statement. “The median price of a new home rose again in November, defying expectations that builders would slash prices to work through inventory… Instead of cutting prices, builders seem to be working through existing inventory by offering concessions instead of price cuts. Home prices did fall from October, which is more of a seasonal trend.”

The Census Bureau and HUD also sharply revised estimates downward for the past three months to account for high rates of cancelations. Since July, about 10,000 contracts have been canceled each month, according to data from John Burns Consulting. Though gross new home sales year-to-date is 602,000, new new home sales are about 519,000, the company’s data shows.

The seasonally adjusted estimate of new houses for sale at the end of November was 461,000, which represents 8.6 months of supply at the current sales rate.

The incentives will need to be amped up if homebuilders are to make sales.

“Builder sentiment and permit data indicate ongoing weakness in the new-home market,” said First American Deputy Chief Economist Odeta Kushi. “With higher mortgage rates and greater economic uncertainty, new-home prices will need to continue to adjust to entice more buyers.”

Added Sturtevant: “Homebuilders are banking on home shoppers returning to the market in the first part of 2023. With mortgage rates sliding, it is likely that there will be more traffic as we head into spring. However, new home builders will face more competition from existing homes as inventory continues to rise.” 

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Mortgage industry executives, analysts and economists have started to place their bets on where mortgage rates will settle in 2023 amid the Federal Reserve’s tightening monetary policy and the fears of an economic recession. Spoiler alert: don’t expect much, if any, relief for borrowers in the short term. 

It’s true that after doubling over the course of a year, the 30-year fixed mortgage rate is trending downward at the close of 2022. On Thursday morning, a Freddie Mac survey showed this week’s rates at 6.27%, four basis points lower than the previous week. (Mortgage rates averaged 3.05% one year ago.) And Mortgage News Daily’s tracker clocked rates at 6.28% on Thursday, about 10 basis points lower than Wednesday.

Despite the small drop in mortgage rates in recent weeks, they won’t drop significantly any time soon, analysts and mortgage executives told HousingWire. 

“Our baseline is not for the Federal Reserve to cut rates next year,” said Bose George, mortgage sector analyst at Keefe, Bruyette and Woods. “Spreads could tighten a little bit, and then maybe you get a mortgage rate that’s 5.75% to 6% something, which will be a slightly positive benefit to the market, but not much.”

“The Mortgage Bankers Association is assuming mortgage rates are down to the low fives in the next year. Their volume expectations are a little more positive than ours because that leads to an improvement in the back half of next year. But we’re not building that in at the moment,” he added.

The latest MBA mortgage finance forecast shows the 30-year fixed rate at 5.2% at the end of 2023. 

“MBA expects the housing market and broader economy to remain volatile in early 2023, but with mortgage rates on a downward trajectory, prospective buyers could return to the market,” MBA president and CEO Bob Broeksmit said in a statement. 

The lender outlook on mortgage rates

Those closer to the borrowers – the mortgage lenders – don’t expect rates to go significantly down either.  

“I think we’ll be hovering around 6% to 8% for a little while. I don’t see any major items that would cause rates to drop in 2023,” said United Wholesale Mortgage’s chief strategy officer, Alex Elezaj. 

“Nobody has the crystal ball to know, but we are making sure that as the next refi opportunity comes, our wholesale brokers have the tools in place to execute for their borrowers,” Elezaj added.

Sonu Mittal, head of mortgages at Citizens Bank, expects rates to stay where they are for at least the first half of 2023.

“Then we can see a downward trend, but nothing anywhere close to what we saw before,” he said. “I think rates will settle down somewhere in the middle 5s. But I’m sure you will see all the forecasts.” 

According to Sam Khater, Freddie Mac’s chief economist, heading into the holidays, mortgage rates continued to decrease, which is helpful for potential homebuyers. 

“But new data indicates homeowners are hesitant to list their homes,” Khater said in a statement. “Many of those homeowners are carefully weighing their options as more than two-thirds of current homeowners have a fixed mortgage rate of below 4%.”

Borrowers are hesitant because of a combination of high interest rates, a sense that a home price correction has to happen and that a recession is coming, according to David Battany, executive vice president of capital markets at Guild Mortgage. 

“It’s the combination of the actual math of a higher payment or just the psychological effect of rates being really high and home prices probably softening,” Battany explained.  

To illustrate the impact of higher mortgage rates, the monthly payment for a median-priced home is currently more than $2,000, a 64% increase from a year ago, according to Realtor.com‘s manager of economic research, George Ratiu. “First-time homebuyers are struggling with high consumer prices, property values and interest rates, which are pushing savings rates to very low levels and delaying their ability to gather a sufficient down payment,” Ratiu said in a statement. 

At the same time, Ratiu said, current homeowners looking for their next home “are finding that the prospect of higher prices and, in many cases, double or triple their current interest rate, are causing them to rethink their decision to move.”

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On Wednesday, existing home sales collapsed near the lows we saw during COVID-19 and back in 2007 when the housing bubble burst. In addition, this is the fourth straight month of inventory declining, while days on the market are growingl! Confused by this? I hear you; let’s dive deeper into today’s report.

From NAR: “In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020,” said NAR Chief Economist Lawrence Yun. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”

One of the housing economic realities that I have been trying to stress this year is that a traditional seller of a home is typically a buyer as well. This explains why total active listing inventory data has been stable over the decades, with the exception of 2006-2011, when those forced distressed credit home sellers couldn’t buy.

Since the credit standards have improved post-2010, we shouldn’t see distressed sellers until a job loss recession happens, even if sales fall noticeably. This happened during the early months of COVID-19, and we have not seen the panic selling in 2022 like some people predicted.

Housing inventory

Today, inventory is almost 900,000 active listings below the lowest level of the four-decade average between 2 million and 2.5 million.

Inventory is now down again in the NAR report; this is the fourth month of inventory decline, now running at 1.14 million. The all-time lows were around 860,000 this year, and the all-time high was a tad over 4 million in 2007.

We have had two historic events that created a waterfall dive in demand recently; we now have precise data showing new listing data declining with those events, which shows how important that data line is to housing demand. This is the biggest story in housing. 

For a decade, the traditional view on housing has been that when demand collapses, inventory will spike higher, which is what we saw during the years when the housing bubble burst.

I have never believed in this concept because of how the housing market credit channels work. I have stressed that inventory can grow through a weakness in demand over time. This means what we saw in 2005-2008 with the inventory spike was a historic event that hasn’t been replicated at any time in recent U.S. economic history. 

We have one data line that clearly shows the credit stress in the system, and it’s been my favorite chart at all my events (see below). Without significant credit stress in the system, we can’t ever assume we will see inventory scale spikes where sellers will not be able to buy homes because of a foreclosure or short sale.

We can believe in a forced equity seller premise, where someone loses their job and needs to sell their home to gain access to money. That is a real live talking point, but it will require a job loss recession. As we can see below, the U.S. housing market had high levels of credit stress in 2005 through 2008; then, after all that, we had the job loss recession. None of that has ever happened again since 2012.

Hopefully, this explains why total active listings are still low, and the NAR data has now shown four months of decline. We have a shot at having total active listings below 1 million over the next two months because demand is picking up during a seasonal inventory decline period.

Below, you can see the decline in sales data, which is not as sharp and short as we saw during COVID-19 but a waterfall dive in demand nonetheless. Mortgage rates spiked in March, and then the new listing data started to decline at the end of June. My line in the sand has always been 4 million on the monthly existing home sales prints because it’s been a rare event that sales go below that level post-1996.

We have broken under 4 million existing home sales only twice post-1996. First was the tail end of the housing bubble bursting in 2008, and second was in 2010 in the aftermath of the homebuyer tax credit when sales were pulled forward and then collapsed.

From NAR: Total existing-home sales waned 7.7% from October to a seasonally adjusted annual rate of 4.09 million in November.

One of the most encouraging signs I see in today’s report, which I also loved in the last report, is that the days on the market are growing.

I am not, nor will I ever be, a fan of a housing market with days on the market in the teens or lower. This means we don’t have enough active listings for buyers, forcing people to bid against each other. I consider this growth year over year from 18 days to 24 days as a plus and a step toward a more normalized housing market.

NAR: First-time buyers were responsible for 28% of sales in November; Individual investors purchased 14% of homes; All-cash sales accounted for 26% of transactions; Distressed sales represented 2% of sales; Properties typically remained on the market for 24 days.

Home-price growth is cooling off dramatically, which is another awesome thing about housing this year. Yes, I know I am very biased here. Since February 2022, I have labeled the housing market savagely unhealthy as home prices have escalated well above my 23% home price growth model for 2020-2024 in less than two years.

This is why my rants of needing higher mortgage rates went into overdrive back then. However, now we are working our way back to a normal marketplace, which is good, not bad.

NAR: The median existing-home price for all housing types in November was $370,700, an increase of 3.5% from November 2021 ($358,200), as prices rose in all regions. This marks 129 consecutive months of year-over-year increases, the longest-running streak on record.

Purchase applications

The other housing news of the day, the forward-looking purchase application data, had another positive trend data line report. The week-to-week action saw a slight 0.1% decline, but now the year-over-year decline is 36%. As crazy as this sounds, that is 10% above the lows we had this year when this index was down 46% year over year.

Now, we need to add some context to this data line.

During the months of October 2021 to January 2022, we had a rare volume rise in the purchase application data, which took existing home sales toward 6.49 million in January of this year. This meant that all housing data, especially purchase application data, would have extremely hard comps to work with this year from October to January.

When I saw where trend sales data was going, I was anticipating that purchase application data would be down on average between 35%-45% year over year from October to January. So far this year, we have been down 36%-46% during this period. So, the data looks normal to me, as I was anticipating this.

What I didn’t anticipate was how well the market reacted to mortgage rates that went 1.25% lower in a short amount of time. This sent this data line positive for seven straight weeks, making us rise from the bottom decline of 46% year over year to now just 36%.

This means, for now, we have found a bottom in the data and bounced off the lows with positive trending data. This means in a few months, the existing home sales data should look better as this data line looks out 30-90 days.

The big takeaway in today’s existing home sales report is that we need to see new listing data grow in 2023 to get more home sales. Some people might believe that new listing data being negative is good for the housing market because it means inventory is stable. I believe this is the wrong way to look at the housing market. We want to see people list their homes and move when they want to. That is just a function of life; not everyone sits in the same home for 18 years like me. 

Hopefully, in 2023, when we see the traditional inventory rise, this will come with new listing data growth, and we can get the total national inventory levels back to 2019 levels, which I will be very happy to see.

The housing market couldn’t take the shock of mortgage rates moving from 3% to 7.375% in one year, and this forced some people to change their minds about selling their home since they will have to buy another one. Hopefully, a more stable mortgage rate market means new listing data can grow in 2023.

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When the refi market dried up in 2022, business took a drastic turn for Thuan Nguyen, CEO of Loan Factory and the top loan originator on the Scotsman Guide for the last two years. Prior to the downturn, more than 90% of Nguyen’s business came from refinances.

Nguyen says he has originated $467 million in origination volume this year, closing 1311 units by the end of November. This falls well below the landmark $1 billion he reached in 2020 and 2021.

Forecasting another purchase market in 2023, Nguyen started using his proprietary software for something new – to pursue relationships with realtors. 

“I never had to work with realtors, but now I spend a lot of time working with realtors – supporting them and partnering with them,” Nguyen said in an interview with HousingWire. 

He built features that cater to realtors’ needs – such as weekly updates on the housing market, daily alerts of mortgage rates and keeping real estate agents informed of borrowers’ pre-approval status. 

While Nguyen had to cut his workforce to about half this year, he plans to scale his company in 2023 by hiring 1,000 LOs and targeting the purchase market in Loan Factory’s 44 licensed states. 

“I think I built a very good system – good process and good technology. But then it’s been underutilized,” Nguyen said. “If I can open it up and share that with a thousand of LOs (…) instead of having a one to one win, now I can have a 1,000 to one win doing the same thing.”

Read on for Nguyen’s new business strategies for 2023, how he plans to scale his business and prospects for the housing market.

This interview has been condensed and lightly edited for clarity.

Connie Kim: Thuan, you hit a record $2.47 billion in origination volume last year, making you the loan originator with the most origination volume for two consecutive years on the Scotsman Guide. However, with your volume mostly coming from refis, how badly has it affected your business?

Thuan Nguyen: Not good. If you look at that (Scotsman guide) number, about 94% of my business was from refinance. Right now, there’s no more refinance, so it’s a big change.

Earlier this year was much better, but now it’s not good. I close about 60 loans a month only. For sure I won’t be able to make $1 billion [in origination volume] this year. My production until the end of November is 1311 units or $467 million. That is about one-fifth of the previous year. I don’t even know if I’ll be on top anymore.

It’s affecting everyone, but for me, it’s harder because most of my business comes from refinances. 

CK: Are you doing all these productions by yourself? How is business delegated among team members? 

Nguyen: I do have a team that works for me and supports me. There’s no way I can close that many transactions by myself. I cut [my team] down a lot. I have about five loan officers helping me, and I have more than 30 processors and assistants helping me. 

CK: Has there been layoffs at Loan Factory as well? 

Nguyen: I would say more than 100 layoffs at Loan Factory, and many of them also left voluntarily. Last year we had more than 200 employees, including LOs, processors, and assistants. 

CK: With the market drastically shifting to a purchase market from refinances this year, how have you changed your business strategy, which was refi-dependant? 

Nguyen: I changed my strategy a lot. In the past, I never had to work with realtors, but now I spend a lot of time working with realtors – supporting them and partnering with them.

Secondly, I did not recruit LOs, but now I have opened up. My company had only a few LOs, but now I want to grow full speed and focus on recruiting and supporting LOs.

My plan is to open up my platform, my resources, [and] my technology to help LOs who join me. Instead of focusing on myself, I’ll focus on recruiting LOs, training and supporting them and building a great platform so that they can make money easily. We have about two to three dozen independent LOs, but the goal is to have 1,000 LOs in 2023. 

CK: The software you built for Loan Factory – Moso Software – automated a lot of the mortgage business model, whereas other lenders require loan originators to talk to borrowers. How has your software helped build relationships in a purchase mortgage-dependent market? 

Nguyen: We built some features to support realtors. For example, we have subscriptions that go out to realtors weekly. Out of the 27,000 transactions, we have about 8,000 realtors that closed transactions with us. So the system will put them into a database and email them every week with market updates.

We also have another subscription sending daily alerts to realtors because a lot of them want to know the rates today, especially when rates keep on changing so fast. We also help realtors follow up with their clients. 

A lot of agents send us loan pre-approval requests. Our system would monitor and update the realtor of the process of the borrower’s application. The software helps us monitor the production, the referrals they send to us, the referrals they send to them.

We track the referrals both ways, and that would allow us to improve their relationship. We send them a report every month showing how many transactions they sent us, how many clients we sent to them, and what their status is. So, with technology, we can do a lot of things and we can scale.

We build relationships with existing clients, too. For example, whenever we have a new client, we ask them how they found out about us and then we track that. We reach out to the referral and say thank you.

For example, if our client is happy with us, he refers his friends and family to us. We track that. We know who referred a new client to us; we say thank you. We show our appreciation. And I don’t think anyone out there does this. So we focus a lot on customer service.

CK: With the mortgage origination volume expected to shrink further next year, how do you plan on managing cost-cutting when you plan on hiring more LOs?

Nguyen: We have a great system in place. Everything is pretty much automated, highly automated, so we don’t have to cut costs anymore. Actually, if we have 1,000 LOs joining, we probably have to hire more people in the support system. I don’t expect to cut more, but we expect to hire more people.

I think I built a very good system – good process and good technology. But then it’s been underutilized. If I can open it up and share that with a thousand of LOs, those LOs can use those as a tool to go out and help consumers. Instead of having a one-to-one win, now I can have a 1,000-to-one win doing the same thing.

I’ve been selling subscriptions to my software, but the LO who joins my company can use my software free of charge. When they join, they can take advantage of everything I have – from technology, process, marketing, pricing, support, and even mentorship.

CK: Retail lenders gave out hefty signing bonuses to top producing LOs during the pandemic boom. Is this something you plan on doing to recruit top producers? 

Nguyen: We want to recruit high production LOs, but at the same time, I see that some LOs have a lot of potential, so I’m open to everyone. Most of the signing bonus came from retail lenders. They charge super high interest rates. I don’t think that model will last.

The bottom line is how can they (LOs) attract a lot of clients, how can they close a lot of transactions. When LOs join a company, they’ll be looking for how much they will get paid per transaction, what kind of support do I need, what kind of pricing can I provide to my clients? Those are more important than the signing bonus. 

CK: In addition to hiring more LOs in 2023, are you planning office expansions like you did in 2020?

Nguyen: Actually, I already expanded so fast. Right now, we are already in 44 states. So we cover almost the entire nation. License-wise, we are almost everywhere. The next step would be having 1000 LOs in the company – that’s how we’ll expand.

CK: There has been a lot of talk about retail LOs moving over to the wholesale channel amid the mortgage downmarket. Have you seen this trend as well? 

Nguyen: Yes, for sure. Retail rates are so high, and I see that being a broker has so many advantages, especially the pricing. I think that trend will continue for sure. I don’t see any advantages in retail LOs.

In the past, many retail loan officers chose to work with lenders because they had a good process, a good system to support them. But now the broker system is improving a lot. Some brokers provide all kinds of support, or even the same level of support. So working with a mortgage broker that has a good support system, good process, [and] good pricing is way better than working for a retail lender. 

CK: Who are your major wholesale partners, and what about them makes it easier for you to work with them?

Nguyen: Rocket Mortgage. We receive a lot of support from them – good pricing always, they have no early payoff penalty fee, underwriting support, no extension costs. There are a lot of perks they give us, and it’s in the contract. They have Pinnacle partners – I believe the top 15% of brokers would get better pricing. 

CK: What kinds of products will gain traction in 2023?

Nguyen: I think right now, non-QMs are pretty popular. The newly released Freddie Mac’s Home Possible mortgage and Fannie Mae’s HomeReady mortgage to help first-time homebuyers and low income borrowers will become popular. Fannie Mae and Freddie Mac are helping people with low income, so I think that will become popular, as it will benefit a lot of people. 

CK: Mortgage rates are expected to go down, but expected home sales numbers aren’t encouraging. Are you still hopeful about seeing an uptick in housing activity?

Nguyen: I think we are already starting to see that with rates starting to decline [as of] two, three weeks ago. I think we already hit the bottom. That’s why I feel optimistic. A lot of people can still afford and qualify. They’ve been waiting, so early next year they’ll jump into the market. 

CK: With mortgage rates expected to drop to 5% levels, some LOs expect refi activity to go from homeowners who locked in rates at 7% levels. Is this in line with your expectations for next year? 

Nguyen: No, because not many people took out loans at that rate. There weren’t a lot of transactions during that period, either. Plus, if their loan amount is small, what’s in it for them to refinance? So I don’t see a lot of support for that. It has to be purchase-heavy for sure next year. 

CK: For those LOs that will be sticking with the industry, what strategies should they be deploying?

Nguyen: It’s all about relationships with family members, friends, [and] realtors, so focus on that and social media. There are so many loan officers, but only some will be successful. LOs will have to spend a lot of time on marketing on social media. Loan officers have to let the public know who they are and why they are good. They have to educate the public. 

It takes a lot of effort, and it’s important to choose a good partner. If you don’t have a good system, good pricing, [and a] good process in place, how can you compete? It’s all about technology and pricing. Consumers got hit with high rates. They want to shop around. So if you work for a retail lender with high rates, how can you win? How can you get the customers? That’s why I say in the next year, you will see more consolidation, more retail LOs joining the broker channel. 

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