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68 I N D U S T R Y I N S I G H T / D O U G L A S W H I T T E M O R E e financial crisis brought with it total devastation of capital and housing markets, the collapse of financial institutions that had survived both World Wars and the Great Depression, unprecedented regulation, bailouts, and a global contagion that decimated economies worldwide. New terms such as "quantitative easing" and "fiscal stimulus" became household phrases. e Federal Reserve slashed interest rates to lifetime lows and grew the balance sheet to $4.5 trillion at present from $870 billion in August 2007. As mortgage and consumer servicers now look to the future, they must consider how the landscape, consumers, technology, and the markets have changed. A major piece of that is understanding how today's average homeowner vastly differs from those pre-2008. Another major factor is the servicing industry's preparedness for handling a significant default event, disaster, or crisis. THE DIFFERENCE A DECADE MAKES Ten factors have changed the market over the past decade: 1) Record Home Price Appreciation—Since hitting post-crisis lows in 2012, home prices have increased 53 percent. However, when comparing to the pre-crisis peak in 2006, home prices are up 21 percent. Although 53 percent in seven years may seem high, keep in mind that home price appreciation is being compared to the trough of the most distressed real estate market the world has seen between 2006 and 2009. One could argue that the market was oversold, but if you back that timeframe out, you have 21 percent appreciation since 2006, averaging around 1.75 percent appreciation year-over-year (YOY). One could also argue that it is comparing to an overpriced, bloated, and propped-up market. If you were to split the difference, you still land somewhere in the range of 3 percent YOY, which is within the range of what most economists call "normal." 2) Elevated First-Time Homebuyer Rates— First-time homebuyers have outpaced repeat homebuyers since 2008 (and every year since). Before the crisis, the opposite was true. First- time buyers comprised nearly 60 percent of homes sold in 2017. FHA owns 83 percent of that market, up from 75 percent during the crisis. is may be one of the most important indicators of a healthy market since the crisis. First-time buyers (FTB) are facing high prices, low supply, tight credit standards, and tight incomes with low savings, but they have still been outpacing repeat homebuyers YOY since 2008. is points to the resiliency of the first- time homebuyer as well as to the fact that we have far more first-time end users and fewer speculators entering the market—another strong sign of health. 3) Below-Average Homeownership Rates— e U.S. achieved its peak homeownership rate of 69.2 percent in 2004, and there have only been two years it has fallen under 63 percent: In 1965 and in 2016. Although on the rise, today it sits at 64.4 percent. ere continues to be much debate around this topic, but there's one thing most agree on: At its peak, the market was inflated with bad loans and overstretched homeowners. Affordability is without a doubt an inhibitor today, particularly with millennials, but as shown by FTB rates and the Home Affordability Index, More than a decade after the financial crisis, the residential mortgage market has undergone fundamental shifts. How must servicers adapt to better serve the needs of this transformed landscape?

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