We had a somewhat sobering chat with a high-level brokerage executive last week. He shared some candid opinions on the industry and we’ve conveyed them below (take them for what you will):
Market share for brokers could drop to 20-25% from roughly 30% today, for reasons that follow.
The number of brokers handing in their licenses lately has been well above normal.
Brokerage consolidation is looming because industry volume growth is stalling, broker compensation will shrink due to rate buydowns, and economies of scale will become essential.
Banks have extraordinary liquidity and will get increasingly competitive on rates. Big banks are not forced to rely heavily on the Canada Mortgage Bond market or high-cost deposits for capital, like many smaller lenders.
Banks are carrying huge balance sheets into a decelerating market. More supply of cash and less demand for mortgages means tightening margins.
Gaining market share has become a bank obsession.
Bank sales forces will continue to grow.
What does this mean?
Competition will intensify in ways we haven’t yet envisioned
It’s a great time to be a mortgage shopper
It’s not a great time to be a brokerage firm owner
It’s not a great time to be a smaller lender without diversified funding sources
If you’re a broker, then selling something besides rate will become essential to survival, as will ensuring your customers make you their last stop, and not their branch.
Statistically, clients who contact a bank or broker are talking to at least one other banker or broker. As technology makes it easier to shop around, people will increasingly do so. In turn, it may become common for customers to consult three or more sources before settling on one originator.
Fortunately, brokers continue to be differentiated by the choice and independent advice they provide to consumers. The broker industry will need to heavily leverage those characteristics going forward.