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Tough Sell: Mortgage Lenders Report Another Down Year in 2023

3 min read

It was another tough year for mortgage lenders in 2023 as conditions continued to cool activity in the market.

Arvest Bank was again the state’s most prolific lender with nearly $810 million in loans originating in Arkansas in 2023. That, however, represented more than a 23% drop from 2022, when Arvest originated mortgages with a total value of more than $1 billion.

Arvest Bank’s mortgage values were more than double those of Centennial Bank, which issued mortgages of more than $346 million in 2023.

“We budgeted down, but we missed our mark on our budget,” said Matt Kendall, president and CEO of Arvest Bank’s mortgage division. “We thought we would be a little higher than that. We budgeted for a pretty decent-sized decrease in the market in ’23.”

The adverse conditions included mortgage interest rates that have jumped in the past two years as the Federal Reserve worked to tame a burst of post-pandemic inflation the likes of which Americans have not seen in decades. Historically, mortgage rates approaching 8% are not a high mark, Kendall said, but they seem so after years of much lower rates.

Rates are edging a bit downward into the 6%-7% range, Kendall said.

“We are still below average historically on interest rates,” Kendall said. “We have a lot of muscle memory, short-term memory because it has been over the last 10 years we’ve gotten used to these artificially induced low rates from government intervention. Those 2%-3% and 4% rates probably aren’t as healthy as people think for the economy.”

Additional contributing factors were the rising costs of home construction and the continued higher home prices.

“There were multiple headwinds,” Kendall said. “We saw construction rates more than double in a 12-month period as well as long-term rates. We saw a pretty good downturn in mortgages both in purchases and big-time in refinances. That was huge.

“The cost of housing and new construction as well as existing pricing went way up, too. That makes even a bigger headwind. It becomes an affordability issue.”

Kendall said he expects to see rates ease this year.

“I think ’24 will not be as painful,” Kendall said. “I don’t have a crystal ball, but my best guess would be that we will see rates trend back down in ’24, not way back down. If they do breach that 6% mark, I think we will see a lot of pent-up demand take action.”

Expectations

Of the 12 mortgage lenders that shared information with Arkansas Business for the past two years, only five of them saw the average value of loans increase from 2022 to 2023. Arvest Bank’s average loan increased 12.9% from $235,932 to $266,443; Centennial Bank’s average loan went from $222,898 to $251,169, a 12.7% change.

As inflation seems to be calming, Kendall expects lending to pick up the pace if interest rates edge back down.

He doesn’t see home prices dropping, though.

“The only headwind I see [in 2024] is I don’t see housing prices going down, and I’ve seen new construction prices since late 2020 go up 40%,” Kendall said. “I think that is here to stay. I don’t think we will see these crazy 20%-30%-40% swings in home prices in the future. I think we will get back to normalcy on home price gains over the next two, three, four years. Builders can’t afford to cut the prices that much.”

Kendall said many potential borrowers seem to be waiting for the golden days of just a few years ago when interest rates were much lower. He said the sooner people realize that interest rates will probably not see a significant decline, the sooner market activity will resume.

“People need to stop looking in the rearview mirror and start looking straight through the windshield,” Kendall said. “This is the new norm on rates. Prices are not going to take a hit.

“I think by far we are still kind of on the fence waiting for rates to drop tremendously; I think that is a headwind. I think as time goes on with the new norm of rates, that will subside, and people will let up on that mentality that rates are going to go way down. I don’t believe they are going to go way down. I think they are going to trend down somewhat.”

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