Home prices are rising, mortgage originations are shrinking and the housing recovery is barely moving, and as more reports ask when the market will return to normal, one source presents a new question: what if this is the new normal?  

“There are so many people wondering whether the mortgage market will ever come back to where it was at one time,” said Phil Huff, CEO of Platinum Data Solutions.

 “Will we see a recovery? I am not 100% sure that we're not seeing a 'new normal' in action today,” Huff said.

He explained, “Homeownership and the dynamics of the market place have changed. The new normal could be a $1 or $2 trillion marketplace, and we may never return to what we considered normal.”

The Mortgage Bankers Association and other firms estimate a $1 trillion mortgage market for 2014, if that.

 “We think the next couple quarters could be challenging for mortgage companies,” FBR analysts Paul Miller, Thomas LeTrent and Jessica Levi-Ribner said in an industry update. “In order for the purchase market to experience a true recovery and outpace the decline in refinancings, we believe that banks will need to go down the credit spectrum and lend to lower-FICO borrowers.”

However, Huff noted that hopefully the market will return to some sort of normalcy as the impact of Dodd-Frank starts to ease.

More and more lenders have stepped slowly into non-QM lending in the six months since the Consumer Financial Protection Bureau’s Qualified Mortgage requirements went into effect.  

Huff sees two fixes that could to get the market back to normal levels:  

1. Institutional investor pullback

“I think the biggest thing impacting affordability is the ever presence of the institutional investor. They have taken over the market, and while prices are coming down, they are still not near normal numbers,” Huff said. “Before we see change, investors need to recede from the market and get back to a normal rate of 15% to 20%.”

2. Student debt relief

“The second part of the story is student debt. It is a big black spot on the industry's face, and I think the administration will play a big role in trying to fix that,” he added.

Recently, President Barack Obama issued an executive order to expand a program easing student-loan payments. He also endorsed the bill from Sen. Elizabeth Warren, D-Mass., which would help former graduate students like Day, whose federal loans typically carry higher rates than those on undergraduate loans, with some as high as 8.5%.

With less homeownership, the new normal has seen a climb in rentals and renters.

“I don’t think this will be an easy climb back out,” Huff said. “The new generation doesn’t think the same way as the older generation does. There is a bit of a fundamental shift in the way we look at housing that will play a role as this market recovers.”