Texas mortgage bankers reverse course on rate expectations amid persistent inflation 

COLLEGE STATION – The residential mortgage industry, slammed by higher interest rates since the Federal Reserve started tightening monetary policy to combat inflation in 2022, cautiously eyed a growing consensus that interest rate reductions would arrive in 2024. That moderation, however, stalled during the first quarter as price pressures reaccelerated across a broad basket of goods and services. The latest issue of the Texas Residential Mortgage Survey (TRMS) shows the residential mortgage industry in Texas is adjusting accordingly.  

“Inflation has kept mortgage interest rates higher than most companies expected as we enter the peak home buying months of the year,” said Texas Mortgage Bankers Association President Matt Kiker.  

The TRMS six-month index for mortgage interest rates increased for the first time since September, corroborating the calibration to a higher-rate environment. The industry outlook, however, continued to improve amid growth in the home-purchase market. 

“In spite of higher rates, higher home prices, and low inventories, mortgage bankers remain optimistic due to the number of prequalified borrowers working to find homes. Texas continues to attract more residents, and we are thankful for the builders who are doing their part to create more affordable housing across the state.” 

According to the Texas Real Estate Research Center’s (TRERC) Texas Housing Affordability Index (THAI), statewide affordability fell in 2022 and has stabilized at its lowest level since at least 2011. 

“The THAI has tracked movements in mortgage rates since the COVID-19 pandemic,” said Wes Miller, TRERC senior research associate. “Housing affordability initially increased during the pandemic until surging home prices counteracted these gains. These gains turned into diminished affordability once mortgage rates rose, as home-price appreciation moderated but the level of home prices held firm. We are currently in an environment where mortgage rates and home prices are relatively stable.” 

This stability has supported a minor recovery in the residential mortgage market, with the TRMS indicating the volume and average value of 30-year home-purchase originations increasing since December. Revenue from margins and closing costs are trending upward after a year-long contraction, and TRMS respondents anticipate additional improvements over the next six months. Some of this optimism, however, may attenuate as the spring selling season ends. 

The TRMS is a collaborative effort between the Texas Mortgage Bankers Association and the Texas Real Estate Research Center at Texas A&M University to provide analysis of conditions and changes in the residential mortgage industry. Designed as a monthly sentiment survey to gauge current conditions and expectations in and around the Texas residential mortgage industry, all TMBA members are invited to participate.