Colin Clark is a mortgage lender in a suburban community outside of Houston, Texas. Like many Americans, this AnnieMac lender is closely watching the upcoming decision on interest rates by the US central bank which has been on its most aggressive series of hikes in decades.
On Wednesday the Federal Reserve is poised to hold interest rates steady at 5.25 percent – 5.5 percent. While inflation has started to cool, it hasn’t been substantial enough to jolt the housing market. The rate hike pause may not be enough to move the needle for consumers to make a move just yet.
That’s because potential homebuyers are waiting for interest rates to start coming down – meaning prospective clients for mortgage lenders like Clark are inholding patterns of sorts.
His livelihood is largely dependent on the whim of the home-buying public.
Mortgage lending is largely commission-based work. In his case, his entire income comes from commissions.
He told Al Jazeera he has had to cut down on personal expenditures across the board including on what he eats.
A study from the payroll software company Everee found that 60 percent of mortgage industry professionals live paycheck to paycheck.
While Clark has no plans to leave the business, that is not the case for everyone. Less people sought work in the mortgage lending business recently. According to the Nationwide Mortgage Multistate Licensing System, in the second quarter, there were 24.5 percent fewer individual licenses awarded for mortgage lenders.
That means people are leaving the sector. The Everee study suggests it is only going to get worse. It says that 31 percent plan to leave the industry entirely within a year’s time and 15 percent were unsure about their future in the business.
The Mortgage Bankers Association declined to comment on this story.
‘Pay all cash’
Clark says refinancing makes up the bulk of his workload during normal times. With heightened interest rates that isn’t happening much these days.
“When 80 percent of your business is coming from refinances during the pandemic then that pretty much goes away as rates start to go up,” Clark said.
The high-interest rates are not only keeping away potential borrowers, they are also encouraging those who can afford to pay upfront for a home to do just that.
Clark says that on three different occasions, he had possible homebuyers leave the table to pay all cash.
According to the National Association of Realtors, all-cash bids are on the upswing accounting for 29 percent of all transactions last month. That’s seven percent higher than this time last year
“One way to avoid a higher interest rate is to pay all cash,” said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.
Not all regions are on equal footing. According to a June report from Redfin, in some cities like Cleveland, Ohio, for example, all-cash bids make up more than 65 percent of sales.
Remote work pushing sales
Charlie Peavley, a real estate agent in the DC metro area says he has seen people leave condos in denser and more expensive areas and relocate to satellite cities like Fredericksburg in Virginia, where they can buy a single-family home for the same price and even move to other states like Ohio for example.
That’s also the case in Texas, according to Clark, who works with clients in Houston, San Antonio and Dallas – the fourth, seventh and ninth largest cities in the United States, respectively.
Part of the rationale behind the surge in moving to historically less expensive cities is because of the prevalence of remote work.
“As long as they’ve got an internet connection, they’re good. Right?” Peavley tells Al Jazeera.
Peavley, Clark and Lautz suggest this is because homebuyers leveraged the capital from a property in a more expensive area to buy something outright in a different market.
“I’ve helped several clients, where they had a one-bed condo in Alexandria, say, and they said, ‘You know what? I am full-time remote now. I am going to spend less money every month, for more house,'” Peavley says.
“We’ve seen a lot of people move in the last few years because of the rise in remote working during the pandemic and home values aren’t the same across all states,” Clark says.
“We’ve seen a lot of people in Texas come from other states, notably California, where they sell their home, and they have that $500,000 in equity that [if] they sold that home, they can buy a house in cash here that’s much bigger than the one they had.”
Lautz says there are also many buyers who are baby boomers and already have substantial equity.
“Half of older baby boomers are actually paying all cash and a third of younger boomers. So it’s very likely it’s a baby boomer who may be purchasing,” Lautz adds.
That leaves younger first-time homebuyers largely in a holding pattern – waiting for the Fed to cut rates for them to make a move.
“They’re [lenders] even disqualifying some sectors of the market, like some of the first-time buyers that would’ve been able to buy something a year or two ago,” Peavley says.
That’s no surprise given just how stretched-thin US households are because of the wave or rate hikes.
According to the New York Fed, Americans for the first time have more than a trillion dollars in credit card payments according to data shared in August reflecting the second quarter of 2023.
That’s exactly what Clark faces. He tells Al Jazeera that his credit card balances are higher than they were only a year ago. Prior to these high-interest rates, Clark, for the first time in his life, did not have to worry about money. Now he’s cutting costs everywhere that he can – opting for store-brand items at the grocery store and limiting his car trips to save money on gas.
