Looking deeper at mortgage demand and products with BMO’s Tom Parrish

Uneven market conditions nationally, rate volatility, economic uncertainty, affordability challenges, limited inventory, and soaring home prices are rendering a difficult home buying and refinancing market for Americans. BMO’s published a survey that reflects this strongly:

• The survey reveals that 64 percent of Americans are delaying their homebuying plans due to mortgage rate concerns - they are waiting for mortgage rates to drop. Additionally, only 6 percent of Americans plan to purchase a home this summer, as elevated rates and home prices impact affordability.
• Furthermore, among those planning to refinance, 81 percent are waiting for rates to drop.

On this episode of the podcast, I’m joined by Tom Parrish, managing director of consumer lending product management at BMO. We discuss the impact high interest rates and economic uncertainty are having on consumer home buying and financing decisions and how BMO is responding to help its clients and prospects.

Here’s my conversation with BMO’s Tom Parrish.

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The following excerpts were edited for clarity.

A challenging market

Tom Parrish, BMO: In general, there are a couple of different dynamics that are going on in the market. I think the biggest one is the lack of housing supply, which is driving a bit of a resurgence of home price growth. And it's supporting increased levels of new home construction, given the lack of supply. But it's also really impacting affordability. So for individuals looking to come into the market to buy a home, obviously, affordability is probably the biggest issue at this point because of where some of the home prices are.

Pushing off buying and financing

I think folks are definitely delaying buying homes. And you can probably put it into a couple different buckets. Personally, I and many others are sitting at very low rate mortgages, where we refinanced a number of years ago. So you have a dynamic of a lot of existing homeowners aren't looking to sell in this market. I might sell and be able to make a lot of money on my house. But then where do I turn to? And what do I have to have to buy? And how much more from an interest rate perspective would that equate to for my next payment on maybe a larger house? So I do think you have some folks that are delaying potentially upgrading in this dynamic given what's happening in the market.

And then you have others that want to enter the market, where housing prices and interest rates are putting pressure on them actually getting into a new home around that affordability challenge. That's the other dynamic -- they really need to be saving more in this environment. The good news is obviously getting something for your savings. But, that's the dynamic that we're in right now. You have a lot of existing homeowners that aren't putting their houses on the market, and you have customers, new home buyers who want to get into the market, but there's not a not a huge supply. And prices are high. So that's preventing some folks to actually step in the market at this point.

Younger home buyers

I think given where average home prices are at this point, it does put pressure on that first time homebuyer to get into the market. And the key, though, we continue to see, is educating first time homebuyers as they want to consider getting into the housing market and buying that first home and what to expect, so even though you might be delaying entering the market right now, education is always critical. So you understand what's really required. Saving up for that downpayment.

As the market does and will change over time, I think hopefully some of the affordability will ease a little bit, open up further, especially as new construction goes on. And the dynamic -- not everybody can sit on that low mortgage rate forever. People do move. Life events happen. So there will come a time when it will be right for those folks to get into the market because they've saved enough and they're ready to take that added step to get into into a new home.

Educating consumers about home buying and financing

We have a lot of great content on our public site to educate borrowers around the home buying process and what to expect. We also do work in our communities. We hold a number of different homebuyer seminars, especially for first time homebuyers looking to get in the market. We have a robust product offering that has a number of low downpayment assistance programs for folks wanting to get into the market. We also have a robust mortgage group with mortgage bankers that are here to help assist customers, as they want to talk to somebody and educate themselves on how to get prepared and what things they need to do.

Looking for credit

You definitely do see [tapping new sources of credit outside of mortgage], and it depends on geographies. It is much more prevalent as first time homebuyers and some folks are getting gift funds from family or friends that are helping gift a part of their downpayment. That's maybe even more prevalent than a number of years ago, so gift funds are definitely in there. And then there's a lot of great downpayment assistance programs. BMO has grant programs for low to moderate income borrowers to help them get into homes. We have programs as little as 1% down from the borrower. And then you can add downpayment assistance to cover the other aspects for your downpayment. So that allows you to get into that home much sooner, potentially.

Anxiety around owning a home

Buying a home is a big decision. So there is a lot that goes into it. And that's why education is, I think, critically important to get confident in your home buying experience. Work with a trusted bank like BMO and our advisors that help you through that process to make sure you can get confident in your decision and understand all that comes with buying a home. I think that's what can help alleviate some of that anxiety. Because it's one of your biggest assets that you'll have in your life. If you're moving from renting to owning, you want to be confident in making sure that's the right choice for you and you're not getting yourself in a position where you're going to be house poor.

You know at BMO we all want sustainable homeownership -- at the end of the day, it's about getting somebody into that first home, and having them succeed in that home and grow over time. So educating them upfront on what's really needed to get there. It's not just that downpayment -- you think about all the other expenses that come with owning a home and just educating yourself about what to expect.

How prepared are customers

The mortgage market is very competitive with a number of banks and non banks out there. Depending on where customers are in their journey, if they're buying their second or third home, and they had some experience with it, they are looking at banks and non banks for the options. At BMO, we've also created a lot of robust mortgage programs to help various types of customers, whether it's the affordable space or we have a very robust physicians program that we offer for new physicians that are coming into the market.

Enclosed construct -- if you want to build a house. We talked about the lack of housing supply, but we're seeing a big increase in a building. So having a competitive product set to help meet the needs of various customers is critically important.

We're looking at it also from a relationship standpoint. So it's not just a mortgage to BMO -- we're looking to create a customer around that mortgage, bringing the most resources in deposits and investments to the table to help that customer make real financial progress, whether it's owning a home or saving for retirement, I think is important that we're just not looking at it as one standalone product.

Targeting specific demographics

I think we've done a lot to create unique areas to help our customers, whether that's our robust downpayment assistance programs to help in the affordable space. We've created our own portfolio product to help individuals in that space, as well. And that's what's unique about BMO -- we can create programs that we put onto our portfolio versus a lot of non banks, which traditionally sell agency products, which they they sell to Fannie and Freddie. We're able to create customized programs or products to help serve various needs. Again, back to affordable all the way through high end wealth customers that may need some different sorts of programs, like interest only loans that we do on the higher end wealth side. That's kind of common in the industry. But that's where we have that breadth across the board to really serve our customers in the various life stages that they might have.

Integrating Bank of the West

We are coming together as one organization with our recent acquisition of Bank of the West. As an organization, we've grown in significant scale and we have a great opportunity to help our customers in their home buying journey. I have a big mortgage team that has been added as part of that acquisition, so I'm excited for them to be part of BMO. And as I look forward, it's heavily focused in the purchase market right now, given the dynamics of where rates are. We have a great sales team that's out there on the street working with realtors, working with customers, to help individuals with their home buying needs. We continue to invest a lot of time and effort into our product set and into our policies, so we can serve our customers through the various life stages.