Mortgages

Rising Affordability in Purchasing Real Estate

BY: JANN SWANSON

Black Knight has good news for potential homebuyers, especially those in the market for their first home. The new edition of the company's Mortgage Monitor says the recent decline in mortgage interest rates has made home affordability the best it has been in 18 months.

With the 30-year fixed-rate mortgage hovering around 3.75 percent, it now takes 21.3 percent of the nation's median monthly income to make a mortgage payment on the median priced home. This is down from 23.3 percent in November of last year and more affordable than the long-term ratio of around 25 percent that was in-play during a time when the market was generally considered to be "normal," 1995 to 2003. It is also much lower than the 34.5 percent ratio at the height of the housing boom.

The rising payment-to-income ratio, as it hit its recent peak last November, appeared to trigger a strong reaction in both sales and home prices.  Given its relatively modest historical position, Black Knight suggests there may be heightened sensitivity to affordability concerns in today's market. Both existing and new home sales have been ragged since then and, although home prices continued to rise, that rate at which they did so slowed considerably.

The average home price has gone up by more than $12 thousand since interest rates peaked last November, but the monthly payment has declined by $108 for an average home purchased with a 20 percent down payment.  Black Knight says this is the equivalent of a 15 percent increase in buying power and means a homebuyer could pay $45,000 more for a home without seeing an increase in the monthly payment.

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Of course, with lower rates and higher affordability, demand is growing again.  The company notes that, the 15-month pattern of price deceleration it had been tracking seems to have leveled off. The annual home price appreciation rate held steady in June at 3.78 percent.

Black Knight cautions that it takes time for impacts for interest rate changes to show up in housing market numbers; even after homebuyers react, there is a time lag due to contract, offer, closing, and recording times.  Therefore, the flat appreciation rate from May to June could be just the beginning and the 3.75 interest rate that hit at the end of June may not show up in home sale and price changes until August or September.

There is a large spread of payment to income ratios across the states, but affordability is improving.  Where nine states were less affordable than their long-term norms back in November, only California and Hawaii remained so as of July.

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Housing is least affordable along the western U.S. and parts of the northeast, while the Midwest and parts of the South are home to some of the lowest payment-to-income ratios.  Not only is housing in the Midwest the most affordable, but it is also the furthest below its own long-term average, as income growth there has been more in line with home price growth than in other areas.

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Even in California, however, affordability has improved.  The state went from having one of the top five home price growth rates of any state (8.6 percent) one year ago to second-to-last as of June 2019, with home price growth slowing to just 1.3 percent year-over-year.  The payment ratio in the state is now 34 percent, down 4 percentage point from November. That is, however, 2.5 points above its long-term ratio.  Growth declines in several of the West Coast's largest markets has been significant up; prices in the last 12 months have increased by 1.1 percent or less in Los Angeles, San Francisco, San Diego and Seattle. 

Price growth among condominiums have been experiencing greater slowing over the last 12 months than have prices of single-family homes. Up until then the two sets of prices had been rising in lockstep, but now condos are appreciating at 2.2 percent compared to single-family homes at 3.9 percent.  That is a 40 percent differential.  The company points out that condo prices are historically more volatile, they had a faster appreciation rate in the late 1990s and early 2000s, experienced a sharper downturn during the financial crisis and then recovered faster in 2012 to 2014.  Now the tide may be turning again.  The company said this could be due to a number of factors and it worth keeping an eye on.

Black Knight also provided an update on the prepayment rate which had been seeing some dramatic increases as rates declined. That, however, ended in June as activity fell by 7.5 percent.  It was the first monthly decline since January and the company calls it surprising "given that refinance incentive continues to rise, and home sale driven prepayments typically increase from May to June."


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 The declines were evident across servicing portfolios, investor classes, interest type and vintages but the strongest reductions were among portfolio held loans, high credit score mortgages and loans originated last year.  Those were the cohorts that had seen the largest increase in prepayments previous to June.  Black Knight says the pullback may be due to sluggish refi-driven prepayments in June rather than (or potentially in combination with) lackluster home sale driven prepays

Mortgage Rates Hold Steady Despite Bond Market Weakness

Mortgage rates side-stepped today, bringing an end to a gentle but consistent move lower over the past 5 business days.  During that time the average conventional 30yr fixed rates for top tier scenarios fell about an eighth of a percentage point (0.125%).  While that only translates to about $7 per month for every $100k financed, it's a pretty decent move historically speaking.  Today's bond market momentum suggests the move could be in jeopardy. 

Bonds are the most direct source of inspiration for mortgage rates, and indeed, for rates in general.  The 10yr Treasury yield tends to track mortgage rates exceptionally well, and it was roughly 0.03% higher today.  The average lender, on the other hand, didn't change mortgage rates at all.  This has to do with the separate set of bonds specifically tied to mortgages: the aptly-named Mortgage-Backed Securities (MBS).  These held steadier today for a variety of reasons.  Simply put, Treasuries had a certain set of concerns not shared by MBS.  

All of the above having been said, if Treasuries lose enough ground, mortgages will eventually be forced to follow due to the structure of the bond market.  Lenders didn't see quite enough weakness for that to happen today, but they'll be starting the day with itchy trigger fingers when it comes to bumping rates up tomorrow.

Today's Most Prevalent Rates

  • 30YR FIXED - 3.875%

  • FHA/VA - 3.625%

  • 15 YEAR FIXED - 3.5-3.625%

  • 5 YEAR ARMS - 3.375-3.75% depending on the lender


Ongoing Lock/Float Considerations
 

  • Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general.

  • The Federal Reserve has been a key player, and while they aren't the ones pulling the global economic strings, their response (and even their EXPECTED response) to the economy has helped rates fall more quickly than they otherwise might.

  • Based on the Fed's laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.

  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.

Article by Matthew Graham, Chief Operating Officer, Mortgage News Daily / MBS Live

The Cost of Waiting: Interest Rates Edition

Some Highlights:

  • Interest rates are projected to increase steadily heading into 2020.

  • The higher your interest rate, the more money you will end up paying for your home and the higher your monthly payment will be.

  • Rates are still low right now – don’t wait until they hit 5% to start searching for your dream home!

Interest Rates.jpg

Highest Mortgage Rates in More Than 3 Weeks

Mortgage rates moved decisively higher this week as the underlying bond market finally began shifting gears.  After the Fed meeting in June, rates moved to the lowest levels in more than 2 years and had been holding in a narrow range since then.  The risks of a breakout were set to increase as the market digested several key events.  One of the most important of those events was this week's congressional testimony by Fed Chair Powell.  

Interestingly enough, Powell's testimony actually helped rates at first.  In the 2nd part of the testimony yesterday, there wasn't much of a market reaction.  Instead, it was stronger economic data and poorly received Treasury auction that pummeled the bond market.  As bonds weaken, rates rise. 

Not all lenders fully adjusted their rate sheets to reflect yesterday's market movement.  That means many lenders offered even higher rates on Friday despite the fact that the underlying bond market actually improved somewhat.  That leaves today's rates at the highest levels since before the Fed meeting on June 19th.


Loan Originator Perspective

Bond markets recovered a good portion of yesterday's pronounced losses, but we're far from out of the danger zone here.  Market sentiment has gone from bond-friendly to (at least) bond-neutral.  It's going to take a LOT to spur rates lower, and not much motivation for them to rise.  I'm locking loans closing within 45 days. -Ted Rood, Senior Originator


Today's Most Prevalent Rates

  • 30YR FIXED - 4.00%

  • FHA/VA - 3.625%

  • 15 YEAR FIXED - 3.5-3.625%

  • 5 YEAR ARMS - 3.375-3.75% depending on the lender

    Ongoing Lock/Float Considerations 

  • Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general

  • The Federal Reserve has been a key player, and while they aren't the ones pulling the global economic strings, their response (and even their EXPECTED response) to the economy has helped rates fall more quickly than they otherwise might.

  • Based on the Fed's laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.

  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.

Mortgage News Daily

Is Mortgage Debt Out Of Control?

The housing crisis of the last decade was partially caused by unhealthy levels of mortgage debt. Homeowners were using their homes as ATMs by refinancing and swapping their equity for cash.

When prices started to fall, many homeowners found themselves in a negative equity situation (where their mortgage was higher than the value of their home). As a result, they walked away. This caused prices to fall even further.

Headlines are again talking about record levels of mortgage debt, making the comparison to the challenges that preceded the housing crash. However, cumulative debt is not an important data point. If we look at the debt as a percentage of disposable personal income, we are at an all-time low.

Here’s a visual representation of mortgage debt as a percent of income:Furthermore, according to a new report from ATTOM Data Solutions, more than 1-in-4 homes with a mortgage have at least 50% equity. The report explains:

Mortgage Debt.jpg

“[O]ver 14.5 million U.S. properties were equity rich — where the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value — up by more than 834,000 from a year ago to a new high as far back as data is available, Q4 2013.”

Bottom Line

Unlike 2008, homeowners have a comfortable level of mortgage debt and are sitting on massive amounts of home equity. They will not be walking away from their homes if the housing market begins to soften.