Good afternoon —
Last Wednesday, the Federal Reserve announced that it would be raising the federal funds rate another 75 basis points, to 3%-3.25%, bringing it back to a level last seen in March 2008.
While this decision was expected by most Fed observers, it was keenly felt within the real estate industry.
“The housing industry is very interest rate-sensitive, and as a result, has slowed in response to the Federal (Fed) Reserve’s monetary tightening,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “But while higher frequency housing market indicators, such as mortgage applications, clearly indicate the housing market is cooling, commonly cited inflation measures have not.”
With the housing market slowing down, mortgage applications decreasing and refinance volume all but drying up, I asked Howard Turk of Turk & Co. what the Fed’s rate hike means for the title insurance industry.
“Title is a transactional business sensitive to economic cyclicality and if the individual number of transactions contracts, then there is less work to do, which produces layoffs,” Turk said.
While the rate hike will most certainly be felt in the refinance and purchase order channels, Turk noted that title insurers who process commercial orders or HELOC orders may not feel the impact quite as much.
Although this might be a tough time for some title firms, Turk said that it is also a great time for growth.
“In a contracting environment, like the one we are in now, it is a great time to capture market share. Some of our clients are using clever tactics to improve their customer service and bring business in, in a different way,” Turk said. “Many are also really busy with workflow design and determining which elements of the workflow lend themselves to outsourcing and then we help them place those with an outsourcer that we know and trust. That produces not just the variable cost structure but also cost savings and servicing improvements.”
Despite the numerous external factors firms might be facing as they work to maintain volume right now, Turk said that, for the most part, their ability to successfully navigate this environment will depend upon how they approach it.
“You always have a choice of mindset — a mindset of abundance or a mindset of scarcity,” Turk said. “If you have an abundance mindset, you look at this time and say, ‘I am going to be outwardly focused when everybody else is inwardly focused and if I do that correctly my employees will still have jobs.’”
Until next week,
Real Estate and Title Industry Reporter