Massachusetts’ mortgage market had a busy year in 2018, not only dealing with four rate hikes from the Federal Reserve, but also record home values and a continued lack of inventory that could not keep pace with demand.  

The median sale price for a single-family home maxed out at $420,000 in June, according to analysis from The Warren Group, publisher of Banker & Tradesman. Total sale volume was also highest that month, with more than 7,200. By December, the median sale price for a single-family home in Massachusetts had dipped to $360,000, the same median sale price as December 2017. The median sale price for the year was $385,000, $20,000 higher than the median sale price for 2017.  

The industry in the coming year will continue to watch how the Fed deals with interest rates, the continued shift to a purchase market and how regulation will impact the speed of closing. 

An Eye on the Fed 

As always, everyone will be watching the Fed. Rate hikes from last year started to impact the market and could continue to do so in 2019. The Fed raised its benchmark federal funds rate at the end of December to a range of 2.25 to 2.5 percent.  

“People are timid on what the future holds,” said Ryan Morgan, senior loan officer at Rockland-based Mortgage East Corp. “When rates went up in the fall, it scared a lot of people.”  

The Fed does not directly set mortgage rates, but as the federal funds rate – the rate that U.S. financial institutions lend to one another – goes up, banks pass on the higher cost to the consumer. The Federal Reserve has projected another two rate hikes in 2019, although if a downturn in the global economy spills into the U.S., it’s very possible there will be no more rate hikes in this cycle.  

Freddie Mac had the 30-year fixed rate mortgage rate at 4.45 percent as of Jan. 10, and predicted in November that mortgage rates will average 5.1 percent in 2019. Although still at historically low levels, this is the first time Millennials are seeing interest rates higher than the 3 percent range, noted John Brodrick, mortgage lending director at Eastern Bank and incoming chairman of the Massachusetts Mortgage Bankers Association.  

“There is a psychological barrier out there,” he said.  

Still, even if the two rate hikes do occur, Morgan and Brodrick think demand and the housing market will remain strong. 

Purchase Market Stabilizes 

Although still competitive and filled with high prices, rising interest rates have turned what used to be a refinance market into a purchase market. Home prices have recently started to come down and supply and demand have improved marginally, said George Koutsos, regional vice president at Cross Country Mortgage. 

“The market is going from just a crazy, absolutely abnormal market in terms of pandemonium to normalizing,” he said, adding that it will be easier for first-time buyers to find a home, and for buyers in general to make a purchase without having to give up protections such as inspections and finance contingencies.  

Fear of further declines in home values have led more people to list their homes and fewer offers are coming in per home from buyers. 

“The market is still healthy, but things are not flying off the shelves like they were,” said Koutsos.  

There’s still a housing shortage in Greater Boston, which will continue to keep the city competitive, especially for first-time homebuyers, who will need to close quickly if they are to beat other more qualified borrowers.  

“There is lots of competition as lenders compete for the same business,” Brodrick said. “What will really be the differentiator this year is lenders who can perform quickly and efficiently.” 

This, added Brodrick, means providing up-front education, being in tune with available grants and subsidies that various cities and towns might offer, as well as operational efficiencies such as electronic document delivery and document signatures and laying out a good timeline for those involved. 

More Paperwork, More Problems 

Changes to the Home Mortgage Disclosure Act that went into effect this year require financial institutions that originate more than 500 fixed-rate mortgages or more than 500 home equity lines of credit to report additional data to the Consumer Financial Protection Bureau.  

Additionally, those lenders who were already reporting their loan origination data are now required to include more information; Brodrick said Eastern Bank went from reporting 23 data points for one mortgage to 48.  

While the new law is intended to help lenders and regulators work together to develop more tools to protect borrowers, the amount of information required from the borrower can hamper the speed of closing on a deal and, in some instances, make customer service more difficult.  

“If you explain it to them properly, they understand,” he said. “If you just ask question after question after question, it can spook them.”