Because it’s cyclical, the mortgage lending business can be unforgiving. As rates fall, volumes and profit margins increase as lenders rush to ramp up operational capacity to meet the demand. As rates rise, volumes and margins fall and lenders are left with excess capacity. The greatest recent cyclical shock was the relentless rise in rates starting in early 2022 that continued unabated through the end of 2023. Rates went from around 3% to 7%, and the mortgage market contracted by about 75%.
But since the beginning of 2024, mortgage rates have stabilized even as loan volumes have grown – by 43% from the month of January to the month of May. Why? Because home purchases, which have represented about 90% of the mortgage market for the past two years, are seasonal (see chart).
As long as that trend continues and refinances remain less relevant, cyclicality will be more predictable and much easier to manage. Overlaying the Curinos LendersBenchmark data set can make it easier still, by helping lenders anticipate future volume increases and decreases to plan their capacity accordingly.
Funded Retail Volume Distribution
Mortgage volume is seasonal and overwhelmingly purchase-based as rates have risen.
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