Let’s face it; The Weather Channel© has changed all of our lives. We watch live minute to minute updates of weather patterns and storm fronts. Experts try and predict events for the next half hour to the next 10 days, to years in the future. They consider longer term cause and effect (El Niño comes to mind) to try and identify what type of seasonal weather we will have. We need the forecasts to help us plan our day, month, and season. Do we bring an umbrella today? Do we buy a new snow blower? When should I plant the tomatoes?

They do this by gathering and analyzing incredible amounts of data. Trying to determine how each piece of information corresponds to the other.

All industries look to perform a similar type of forecasting, and the mortgage business is no exception.

We need to analyze and review incredible amounts of data (employment statistics, stock market prices, bond yields, political races, world events, and so on) and what affect it will have on rates, housing prices, new home sales, and construction, to name just a few.

We need to forecast to help run our business in the most effective and efficient manner. Will home sales be strong? What staff increases do we need to make in order to maintain our processing speed? How do we adjust sales and operations expenses? How will a changing rate environment affect application volume? I like to think of “what will the interest rate be tomorrow” as akin to “should I take an umbrella” and “what will the housing market look like in 2020” with “will we see El Nino in 2020”.

So let’s take a look at one specific piece of long term forecasting: how can we predict the First Time Homebuyer (FTHB) market in 2020?

Studies performed by Zillow® show us that the average age of a FTHB is approximately 33 years old (increasing), 40% are single (decreasing), and they are spending approximately 2.6 times their annual income on homes (increasing).

If we look at the US Census data from 2012, the US had 20,893,000 people who were ages 25-29. This means that today they are between the ages of 30-34. This is the prime FTHB age group.*

Reviewing the next two age groupings from the 2012 census, we would now have 21,878,000 individuals in the 25-29 age range and 21,239,000 in the 20-24 age range. These numbers would indicate that our FTHB applications should continue to be strong over the next 8 years. We could go much further to hone in on a more specific target number of FTHB applications, but I believe you get my point.

The most scrutinized aspect of the mortgage world is the rate environment. The overwhelming winner of most frequently asked question from a borrower is: “what is going to happen with the interest rate”? Will rates go up or down this afternoon? Next week? Or, what kind of rate environment will there be in 2020 that could possibly affect the FTHB market? So much to analyze!

All of these forecasts, including the weather, are subject to drastic changes. There have been predictions of a rising interest rate environment for the past four years. Despite some minor fluctuation, rates have remained relatively flat over this period. So, the lesson here is that with all of the data we have to review, the best we can do is make an educated guess. It is the same as the weatherman trying to predict landfall of a hurricane, they really don’t know.

So, my advice in trying to predict interest rates is this: take an umbrella.



US Census Data -www.census.gov/population/age/data/2012comp.html


Vincent Aurigemma

VP, Residential Lending

Vince Aurigemma - Headshot