June 14, 2023

Applications Turn Around After Four Weeks Of Declines

By TMN Editor, The Mortgage Note – Mortgage applications turned around after four weeks of declines as rates dipped slightly.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – increased by 7.2%.

Adjusted purchase applications rose by 8%, while the unadjusted index was up 17% from the week before and 27% lower YOY.

The average interest rate for 30-year fixed loans fell for a second week from 6.81% to 6.77%.

Though it’s not a huge drop, any dip will pull some rate-sensitive buyers off the sidelines.

“Rates that are still more than a percentage point higher than a year ago, and low for-sale inventory continue to constrain homebuying activity in many markets. The average loan size on a purchase loan decreased for the third straight week, as we continue to see more first-time homebuyer activity in the purchase market,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

First-time homebuyers are conscious of market pressures, and many are specifically looking for lower-priced properties. But the majority feel that homeownership is a good long-term investment and are optimistic about their ability to buy even in the current market.

Rising expenses seem to have played a major role in pushing these buyers into the market. Rent prices were a big reason respondents to a recent survey decided to forge ahead with homeownership despite rates and high home prices.

Refinances also saw improvement, up 6% from the week prior. They remain 41% lower than the same time last year, comprising only 27.3% of total applications. In the past decade, refis averaged 58% of total activity.

“Refinance applications accounted for less than a third of all applications and remained more than 40 percent behind last year’s pace,” Kan said.

“Elevated rates have reduced the benefit of a rate/term refinance for many borrowers and continue to discourage cash-out refinances as borrowers are unwilling to give up their lower rates.”

The FHA share of total applications fell from 13.2% to 13%, with an average interest rate of 6.70%. The VA share increased to 12.6% from 12.5%, and the USDA share fell from 0.5% to 0.4%.

June 5, 20023

Tight credit, high rates and low inventory add to buyers’ affordability struggles 

It now takes 34.2% of the median household income to make P&I payments on the median-priced home:

By Connie Kim, Housing Wire  –  The affordability challenges homebuyers are facing are becoming more deeply entrenched, according to Black Knight‘s most recent monthly mortgage monitor report.

“In a sense, the gridlocked housing market has been feeding on itself,” Andy Walden, VP of enterprise research strategy at Black Knight, said. 

Tightening credit availability, elevated rates, inventory shortages and strengthening home prices are adding to affordability challenges, the report notes. In turn, the 100 largest U.S. markets are now less affordable than the long-term average. 

It now takes 34.2% of the median household income to make principal and interest (P&I) payments on the median-priced home purchased with 20% down and a 30-year fixed-rate mortgage.

One key contributor to the affordability challenges is dwindling inventory nationwide. Since the start of 2023, inventory has deteriorated in 95% of major markets, the report notes.

And, as rates have climbed, purchase activity has fallen, declining to a 34% deficit after pulling within 15% of pre-pandemic levels on mortgage rate dips earlier this year. Mortgage rates averaged 6.79% as of June 1, according to Freddie Mac, up 22 basis points from 6.57% the week prior. 

In addition, Optimal Blue rate lock data shows that average credit scores and down payments are on the rise, signaling a tightening credit atmosphere. This is compounding the challenges for potential home buyers and the origination market alike, Walden said. 

According to the report, purchase credit scores in April were the highest on record, dating back to 2000, when Black Knight first started tracking the metric.

And, the 0.46% seasonally adjusted rise in home prices in April was near the 30-year average of 0.48% for the month, which would reflect a 5.5% annualized growth rate if price gains continued at this pace, according to the report.

“While elevated interest rates continue to weigh on both affordability and demand, they’re simultaneously constricting supply as well as would-be sellers who locked in ultra-low rates early in the pandemic continue to sit on the sidelines. The combination of lower supply and demand in April led to both slowing sales and firming prices,” Walden said. 

Price strengthening nationwide this spring has erased more than 60% of the declines seen late last year, the report notes, and at the current rate of growth, it would fully erase those corrections by mid-2023.

At its current trajectory, the annual home price growth rate would fall only modestly below 0% for a very short time before pulling back above water by late second quarter and early third quarter of 2023, according to Black Knight.

May 3, 2023

Why Declining House Prices and Softening Labor Market Will Not Trigger a Foreclosure Tsunami

By Mark Fleming, First American Economic Insights – Affordability has now improved for four straight months, yet remains down 32 percent since February 2022, according to the Real House Price Index (RHPI). Recently falling mortgage rates have overpowered the affordability-dampening effects of higher nominal house prices. Nominal house price appreciation has slowed dramatically in response to affordability-constrained lower demand. After peaking in March 2022 at 21 percent nationally, annual nominal house price growth has since decelerated by 18 percentage points to 3.1 percent in February.

Real estate is local, and house prices are down from their peaks in 37 of the top 50 markets. With house prices declining, some are concerned about the rising risk of a wave of foreclosures. Yet, foreclosures are the result of two triggers: economic hardship and lack of equity.

The Dual Triggers Necessary for Foreclosure

Foreclosure is a two-step process. First, the homeowner suffers an adverse economic shock, such as a loss of income, serious illness, or the death of a spouse, leading to the homeowner becoming delinquent on their mortgage. However, not every delinquency turns into a foreclosure. With enough equity, a homeowner has the option of selling the home. 

The reverse is also true. If the homeowner has little equity in their home, but suffers no financial setback that leads to delinquency, there is no need for a foreclosure. This is what we call the “dual-trigger hypothesis.” Economic hardship or a lack of equity are alone insufficient to trigger a foreclosure. Only when both conditions exist does foreclosure become a likely outcome. 

Equity Levels Remain High

While nominal house prices are declining across many of the top 50 markets, there is one trend that bodes well for homeowners in all markets – much of the equity gained during the pandemic remains. For example, San Jose, Calif. has experienced the most severe price declines from the peak, yet house prices remain 14 percent above their pre-pandemic level. As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners during the pandemic boom. Additionally, inventory remains historically low in many top markets, putting a floor on how low house prices can fall. The risk of the equity trigger for foreclosure is low.

Unemployment Still Below Pre-Pandemic Averages

While low compared with pre-pandemic levels, rising economic distress and the end of the foreclosure moratorium in 2021 have caused economic hardship for some, especially those homeowners directly impacted by the pandemic. Foreclosures have increased from near zero, but remain well below pre-pandemic levels. Nonetheless, unemployment rates across the top 50 markets remain low. Las Vegas had the highest unemployment rate (6.0 percent) in February 2023, but still has a lower unemployment rate than its pre-pandemic historic average. Additionally, even as the Las Vegas unemployment rate sits above other top markets, house prices in Las Vegas are up 36 percent compared with pre-pandemic levels. All 49 other top markets had an unemployment rate below 5 percent, which is lower than the pre-pandemic national historical average of 5.8 percent. So far, layoffs have not been broad based, and the protection that equity provides to those that have experienced economic hardship has helped to keep foreclosures from rising faster.

Foreclosure Tsunami or Just a Trickle?

Economic distress and a lack of equity are the two triggers of a foreclosure. Alone, each trigger is necessary, but not sufficient to trigger a foreclosure. The equity acquired since the start of the pandemic can provide an important buffer for distressed homeowners. Additionally, while the labor market is showing some early signs of slowing and economic distress is increasing, unemployment rates remain low across the top 50 markets. A softening labor market combined with declining house prices may ultimately increase foreclosures, but the increase is more likely to be a trickle than a tsunami. 

For more analysis of affordability, please visit the Real House Price Index. The RHPI is updated monthly with new data. Look for the next edition of the RHPI the week of May 29, 2023. 

The First American Real House Price Index (RHPI) showed that in February 2023:

• Real house prices decreased 0.2 percent between January 2023 and February 2023.
• Real house prices increased 31.6 percent between February 2022 and February 2023.
• Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 0.5 percent between January 2023 and February 2023, and decreased 21.7 percent year over year.
• Median household income has increased 4.1 percent since January 2022 and 80.8 percent since January 2000.
• Real house prices are 33.3 percent more expensive than in January 2000.
• Unadjusted house prices are now 50 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 6.5 percent below their 2006 housing boom peak.

February 2023 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Maryland (+41.3 percent), Nebraska (+40.0 percent), Alabama (+39.7 percent), Iowa (+39.6 percent), and Florida (+39.5 percent).
• There were no states with a year-over-year decrease in the RHPI.

 February 2023 Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Miami (+50.0 percent), Indianapolis (+45.3 percent), Jacksonville, Fla. (+42.5 percent), Baltimore (+40.1 percent), and Louisville, Ky. (+40.1 percent).
• Among the Core Based Statistical Areas (CBSAs) tracked by First American, there were no markets with a year-over-year decrease in the RHPI.

About the First American Real House Price Index

The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what matters to potential buyers - their purchasing power, or how much they can afford to buy. First American’s proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow. 

The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the house price level. For example, if the house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power. 

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2023 by First American. 

April 18, 2023

Will there be a Residential Real Estate Credit Crunch?

By Mark Fleming and Odeta Kushi, First American Insights -- The housing market has faced its fair share of headwinds leading up to this year’s spring home-buying season. While mortgage rates have retreated from recent highs, they remain elevated compared with one year ago, and house prices, while down from the peak, also remain elevated. All while housing supply remains historically and unseasonably low. These headwinds are not new to the housing market, but there is a new concern on the horizon – tightening credit standards.

“While credit conditions tightened slightly in the March NFCI report, it’s unlikely that the recent banking crisis will materially impact residential mortgage availability.”

Our Potential Home Sales Model, which measures what we believe a healthy market for home sales should be, based on the economic, demographic and housing market environments, dipped this month, and the biggest reason for the month-over-month loss was tightening credit conditions. At the onset of the pandemic, tighter credit was the biggest contributor to the loss of potential home sales, as lenders reduced credit to account for a higher likelihood of forbearance and delinquency. The Potential Home Sales Model uses the Chicago Fed National Financial Conditions Credit Subindex (NFCI), which is a comprehensive indicator of credit conditions. Given the recentbanking crisis, let’s examine how and why credit conditions may affect the housing market.

This Time it’s Different

There are fears that the recent bank failures will prompt lenders to be much more conservative with their lending. At a high level, when lending standards are tight, fewer people can qualify for a mortgage to buy a home. When homeowners are less likely to qualify for a mortgage, they are more likely to stay in their current home or, for potential first-time home buyers, not buy one at all. Credit tightening can come in many forms. For example, the availability of mortgages or other loan products may fall, or it may become more difficult to qualify for a mortgage because of lender requirements for higher credit scores, lower debt-to-income ratios, or larger down payments or greater cash reserves.

While the NFCI Credit index indicated that credit tightened in March, which reduced housing market potential, the credit tightening was modest and far from recent pandemic lows, and certainly nothing like the Great Financial Crisis (GFC) period. One of the reasons that the residential mortgage sector may be protected from credit tightening is that mortgage lending is less sensitive to bank balance sheet pressures.

According to a recent analysis from Goldman Sachs, only 18 percent of mortgages are held on bank balance sheets, while nearly 70 percent of outstanding mortgages are securitized into mortgage-backed securities, so the lender doesn’t have to fund the loan from their deposits or manage the credit risk. The securitization market, dominated by government agencies (Fannie Mae, Freddie Mac and Federal Housing Administration), sets the mortgage eligibility requirements.

Mortgages typically held on bank balance sheets include non-conforming and jumbo loans. Lenders may tighten lending requirements for these balance-sheet products. In fact, in a recent report, the Mortgage Bankers Association indicated that mortgage rates for jumbo loans increased, while rates for conforming loans declined. The divergence in rates suggests that banks may be tightening credit in response to banking uncertainty for those products. By tightening credit and limiting the number of jumbo loans they originate, banks can reduce their exposure to credit risk and conserve their cash if needed.

Affordability and lack of inventory remain the primary challenges to housing market potential. While credit conditions tightened in the March NFCI report, it’s unlikely that the recent banking crisis will materially impact residential mortgage availability. Additionally, the GFC and pandemic fears of foreclosure and forbearance are not top of mind for lenders. 

March 2023 Potential Home Sales

For the month of March, First American updated its proprietary Potential Home Sales Model to show that:

• Potential existing-home sales decreased to a 5.35 million seasonally adjusted annualized rate (SAAR), a 2.5 percent month-over-month decrease.
• This represents a 53.5 percent increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales decreased 10.7 percent compared with a year ago, a loss of 641,700 (SAAR) sales.
• Currently, potential existing-home sales is 1,439,400 (SAAR), or 21.2 percent below the pre-recession peak of market potential, which occurred in April 2006.

April 12, 2023

Homebuyer mortgage demand jumps after interest rates drop to two-month low

By Diana Olick, CNBC – Key Points:

• Mortgage applications to purchase a home rose 8% last week, compared with the previous week
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 6.30% from 6.40%.

Today’s housing market is so pricey that homebuyers are highly sensitive to any distinct moves in mortgage rates. And that’s what happened last week. Rates dropped, and buyers dove in.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.30% from 6.40%, with points decreasing to 0.55 from 0.59, including the origination fee, for loans with a 20% down payment, according to the Mortgage Bankers Association. That was a weekly average decline, but a sharper, one-day drop smack in the middle of the week was likely the impetus for demand.

“Incoming data last week showed that the job market is beginning to slow, which led to the 30-year fixed rate decreasing to 6.30% — the lowest level in two months,” said Mike Fratantoni, MBA’s SVP and chief economist.

Mortgage applications to purchase a home rose 8% last week, compared with the previous week. They were, however, 31% lower than the same week one year ago, when interest rates were significantly lower. Buyers have been up against not only higher rates and higher home prices, but very limited supply.

Applications to refinance a home loan were less reactive, basically flat week to week and 57% lower than the same week a year ago. At today’s interest rates, there are very few borrowers who can benefit from a refinance. For those looking to tap their home equity, they are largely opting for second loans rather than cash-out refinances.

Mortgage rates moved higher to start this week, and they could move decidedly in either direction after the government’s monthly report on inflation is released Wednesday.

March 7, 2023

Single-Family Market Share Continues to Shift from Large Population Centers

By Elizabeth Thompson and Stephanie Pagan, National Association of Home Builders --While nationwide single-family housing starts have slowed in the past year, the largest drop on a percentage basis is occurring in the most dense counties, where housing costs are highest. Meanwhile, multifamily growth was robust throughout much of the nation at the end of 2022, with the notable exception in high-density markets, according to the latest findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for the fourth quarter of 2022.

“While the largest single-family market continues to be core counties of large and small metropolitan areas, the urban core market share has fallen compared to pre-Covid levels,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “During the fourth quarter of 2019, urban core markets of small and large metro areas represented 47.2% of the single-family market. This share declined to 44.5% in the fourth quarter of 2022, representing a persistent shift in buyer preferences to live outside of densely populated areas.”

The largest growth in single-family market share came in rural markets (micro counties and non-metro micro counties), rising from 9.4% in the fourth quarter of 2019 to a share of 11.8% in the fourth quarter of 2022.

“Due to aggressive federal reserve monetary policy and high mortgage rates, all submarkets in the HBGI posted lower single-family growth rates in the fourth quarter of 2022 than a year earlier,” said NAHB Chief Economist Robert Dietz. “Rural areas were the only market with a positive single-family home building growth rate in the final quarter of 2022.”

The fourth quarter HBGI shows the following market shares in single-family home building:

• 16.0% in large metro core counties
• 24.7% in large metro suburban counties
• 9.5% in large metro outlying counties
• 28.5% in small metro core counties
• 9.5% in small metro outlying areas
• 7.4% in micro counties
• 4.4% in non-metro/micro counties

Meanwhile, the multifamily construction market remains elevated above historical levels, with six of the seven submarkets experiencing growth rates above 15% during the final quarter of 2022. However, large metro core counties were an outlier and registered the smallest growth rate, up only 1.5% from the fourth quarter of 2022.

February 23, 2023

The housing industry is on a mortgage rate roller coaster

The 30-year fixed-rate mortgage climbed to 6.5% after dropping to low 6% levels this month

By Connie Kim, Housing Wire – The mortgage industry has been on a roller coaster ride this year due to a resilient economy. In the span of a month, mortgage rates shot up near 7% after dropping to the low 6%-levels. 

“The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist.

The latest economic data, including the job market, consumer spending — which remained robust — and inflation numbers, which displayed unexpected staying power, led investors to bet that the Federal Reserve will continue to raise its federal funds rate through the summer.

Even before these data were released, minutes from the Jan. 31-Feb. 1 Fed officials’ meeting showed that they needed to do more to wrestle rapid inflation back to 2%.

“With inflation still well above the committee’s longer-run goal, participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2% is appropriate from a risk management perspective,” the minutes, released on Wednesday, said.   

The 10-year Treasury yields, which act as a benchmark for mortgage rates, rose to 3.93% on Wednesday, up from the previous week’s 3.81%.

Following the climb in the 10-year Treasury yield, the Freddie Mac fixed rate for a 30-year loan also continued to rise.

The 30-year fixed-rate mortgage rose again to 6.5% as of February 23, up 18 basis points from the previous week’s 6.32%, Freddie Mac’s latest survey showed. Rates were at 3.89% a year ago this time.

Just about three weeks ago, Freddie Mac’s mortgage rates dropped to 6.09% — despite the Fed’s hawkish tone to keep inflation at a target of 2%.

At HousingWire’s Rate Center, the Optimal Blue data showed rates at 6.64% on Wednesday, up compared to 6.48% the previous week. Mortgage News Daily showed rates were at 6.88% as of Wednesday, up one bps from the previous day. 

‘Nobody’s market’

Realtor.com economist Jiayi Xu said that while it’s hard to predict whether the Fed is going to make an aggressive move next month, if companies tighten belts in preparation for a potential economic downturn, it could endanger jobs in the tech industry and service sectors.

“This means that the housing market will continue to be a ‘nobody’s market’ — not friendly to buyers nor to sellers. Mortgage rates are likely to move in the 6% – 7% range over the next few weeks, which continues to pose a significant challenge to affordability,” Xu said. 

In turn, potential buyers could opt to stay in the rental market, driving up the already high rental demand, Xu explained.

Higher mortgage rates also make it less appealing for people to list their homes to sell and buy another, Logan Mohtashami, lead analyst at HousingWire, said.

“As we saw after June of last year, when mortgage rates got above 6%, new listing data started to decline year over year and is still falling year over year,” he said. 

But for those looking to buy in a rate-rising environment, borrowers are recommended to shop among lenders to find a better rate.

“Our research shows that rate dispersion increases as mortgage rates trend up. This means homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among lenders to find a better rate,” Khater said. 

February 3, 2023

Why Mortgage Rates Hold the Key to  Improved Affordability in 2023

By Ksenia Potapov, First American Economic Insights – By all respects, 2022 was a tumultuous year for the housing market. Annual house price appreciation remained at a double-digit pace for most of the year, mortgage rates increased by nearly 4 percentage points in less than 12 months and, as a result, affordability plummeted. By October, housing affordability had declined by a record 68 percent year-over-year, according to First American’s Real House Price Index (RHPI). Given the dramatic shift in affordability in 2022, some rebalancing in the housing market is natural. To better understand the ongoing rebalancing in the housing market, it is helpful to analyze the relationship between the components of affordability, specifically whether changes in mortgage rates or prices have a greater influence on affordability.

Affordability Tug-of-War

Housing affordability is the result of the tug-of-war between purchasing power, which is the product of household income and mortgage rates, and nominal house price growth. House price appreciation reduces affordability, while falling mortgage rates and rising incomes increase affordability.

Changes in income play a smaller part in short-term affordability fluctuations, so they’re excluded from this analysis. In the early days of the pandemic, fast-falling mortgage rates were winning the tug-of-war, despite double-digit annual house price appreciation, and, as a result, affordability was improving. But just as fast-falling mortgage rates improved affordability in 2020 and 2021, the fast-rising mortgage rates of 2022 were responsible for nearly 80 percent of the overall decline in affordability. It’s clear that fluctuations in mortgage rates have a much more acute impact on affordability than house price appreciation or depreciation.

As mortgage rates moderate from their late 2022 high point and house prices decline from their mid-2022 peak nationally and in many top U.S. markets, it is helpful to quantify the tradeoff between mortgage rates and house prices—a rate-price “exchange rate.” According to our RHPI, a one percentage-point decline in mortgage rates has the same impact on affordability as an 11 percent decline in house prices.

What Does the Rate-Price Exchange Rate Mean for 2023?

Mortgage rate forecasts for 2023 range from the low 5’s to the low 6’s, while annual house price growth forecasts range from modest increases to modest declines, generally between -5 and 5 percent. Using the December 2022 average mortgage rate of 6.36 percent as the baseline, if mortgage rates fall to 5.5 percent from 6.36 percent, but house prices remain flat, affordability would improve by approximately 9 percent relative to December. If mortgage rates remain at December’s average of 6.36 percent while house prices decline 5 percent, affordability would improve by 5 percent. If mortgage rates instead increase to 7.5 percent, even a house price decline of 5 percent would not be enough to offset the impact from higher mortgage rates, and affordability would still fall.

House prices are generally downside-sticky—while they may move up quickly, they do not easily move down. Indeed, considering the consensus range for both mortgage rates and house prices, this rate-price exchange rate suggests that movements in mortgage rates will have the greatest impact on housing affordability in 2023.

Historically, neither mortgage rates under 3 percent, nor house price appreciation in the double-digits is considered normal. Housing affordability is dynamic, and a new affordability equilibrium will emerge as house prices, mortgage rates and household incomes shift. In the short run, however, affordability will be largely dictated by movements in mortgage rates.

January 31, 2023

House Prices Declining Fastest in Overvalued Markets Share

By Mark Fleming, First American Economic Insights – In November 2022, the Real House Price Index (RHPI) increased by 60 percent on an annual basis. This rapid annual decline in affordability was driven by two factors -- a 7.6 percent annual increase in nominal house prices and a 3.7 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago. Even though household income increased 3.5 percent since November 2021 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and still-strong nominal house price growth. The loss of affordability has prompted buyers to pull back from the market, putting downward pressure on prices. While still elevated by historical standards, nominal house price appreciation has slowed considerably since early 2022. Nationally, annual nominal house price growth peaked in March 2022 at nearly 21 percent, but has since decelerated by more than 13 percentage points to 7.6 percent in November.

"As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners over the last few years,” says Mark Fleming of First American Economic Insights.

Real estate dynamics are local, yet nearly every market in the country during the pandemic was characterized as a seller’s market. Wherever you turned, multiple-offer bidding wars were the rule, not the exception. However, as house prices adjust to the reality of higher mortgage rates, the pace of adjustment will vary significantly by market.

Real Estate is Local, Again

Nominal house prices declined from their recent peaks in 37 of the top 50 markets we track in November. The market with the biggest decline was San Francisco, where nominal house prices peaked in April 2022, but have since declined by nearly 10 percent as the housing market rebalances. San Jose, Calif. follows closely behind, as nominal house prices have declined 7.8 percent from the recent peak in March 2022. However, house prices have only recently hit their peaks and have yet to decline in markets such as Louisville, Ky., Kansas City, Mo., Hartford, Conn., and several others. 

Of course, repeat-sales price indices, such as the one used in this analysis, are based on the prices from closed sales, which are a lagging indicator of price changes in the housing market because the contracted prices for these closed sales were agreed to months earlier. Even so, it’s clear that some markets are weathering the adjustment to higher mortgage rates better than the coastal markets, where price declines are greatest. 

Overvalued Markets Correcting Faster

Many of the markets with the largest price declines from peak, such as San Francisco, San Jose, and Phoenix, are also some of the more overvalued markets, meaning the median existing-home sale price exceeded house-buying power in these markets. If housing is appropriately valued, house-buying power should equal or exceed the median sale price of a home. Many of the markets where house prices have not yet declined, such as Louisville, Ky. and Kansas City, Mo., are still considered undervalued, meaning house-buying power exceeded the median existing-home sale price in November. There are exceptions to this relationship, but generally it seems that the most overvalued markets are correcting the fastest.

The Silver Lining

While price changes vary by market, there is one trend that bodes well for all top 50 markets – much of the homeowner equity gained during the pandemic remains. For example, in both San Francisco and San Jose, house prices increased by 31 and 29 percent from February 2020 to their respective peaks in 2022. Kansas City and Hartford gained 48 and 40 percent from February 2020 to their respective peaks in 2022. As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners over the last few years.

For more analysis of affordability, please visit the Real House Price Index. The RHPI is updated monthly with new data. Look for the next edition of the RHPI the week of February 27, 2023.

November 2022 Real House Price Index Highlights

The First American Real House Price Index (RHPI) showed that in November 2022: 

• Real house prices decreased 1.2 percent between October 2022 and November 2022.
• Real house prices increased 59.5 percent between November 2021 and November 2022.
• Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 1.3 percent between October 2022 and November 2022, and decreased 32.5 percent year over year.
• Median household income has increased 3.5 percent since November 2021 and 78 percent since January 2000.
• Real house prices are 41.7 percent more expensive than in January 2000.
• Unadjusted house prices are now 48 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 0.8 percent above their 2006 housing boom peak.

November 2022 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Florida (+72.2), Alabama (+65.9 percent), New Hampshire (+64.3 percent), Georgia (+63.7 percent), and Alaska (+63.5 percent).
• There were no states with a year-over-year decrease in the RHPI.

November 2022 Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Miami (+81.1 percent), Indianapolis (+80.0 percent), Salt Lake City (+70.0 percent), Buffalo, N.Y. (+69.2 percent), and Jacksonville, Fla. (+67.2 percent).
• Among the Core Based Statistical Areas (CBSAs) tracked by First American, there were no markets with a year-over-year decrease in the RHPI.

This month’s Real House Price Index (RHPI) included a revision to the First American Data & Analytics House Price Index.

About the First American Real House Price Index

The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what matters to potential buyers - their purchasing power, or how much they can afford to buy. First American’s proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow. 

The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the house price level. For example, if the house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power. 

January 3, 2023

Agents gear up for a turbulent 2023 housing market

By Brooklee Han, Housing Wire – The housing market looks a lot different than it did just 12 months ago in cities and metropolitan areas across the country, and agents and brokers have had to adapt. From continuing education to increased advertising spend and fine tuning their businesses, agents are changing their strategies to better suit the needs of current housing market

“If anyone thinks they are going to sell real estate in ’23 like they did in ’20, ’21 or early ’22, they aren’t going to make it,” Nick Bailey, the president of RE/MAX said.

As of December 18, 2022, the nationwide median for days on market was 70 days, up from 49 days a year ago. The share of homes with price decreases jumped from 26% a year prior to 41% this year, and the Altos Research Market Action Index score fell from a 90-day average of 54.86 to 40.09, according to data from Altos Research. 

In addition, mortgage rates are currently hovering around 6.3% compared to 3.28% a year ago, and Redfin reports that the bidding war rate on offers written by its agents is 44.6%, down 22.7 percentage points from a year ago. It’s a tough housing market, and experts don’t think it will improve much in the first half of 2023.

“The uniqueness of the COVID market and what it took to be successful in that market, those skills probably aren’t going to mean as much going forward,” Ken Johnson, a real estate professor at Florida Atlantic University and a former agent, said. “We are going into a cycle where it is very difficult to sell property.”

“All of these things that we kind of took a little for granted we are going back to. We are going back to marketing spans of 60, 120, 180 days. If I am going to take a listing forward, I’ve got to be good at marketing my property through the MLS and marketing it to other brokers,” Johnson continued. “We are going to see more heavily negotiated sales agreements, whereas before everything was sold as is for really high cash prices with no contingencies. Agents on both sides of the transaction are going to develop or dust off those skills, as they haven’t really been used for a few years.”

Or, as Keller Williams’ Marc King told RealTrends in June: “Right now, we are leaving a speed-based market and entering into a skill-based market.”

For Bryce Schuenke, a top-producing Re/MAX agent in the Minneapolis-Saint Paul metro area and member of The Minnesota Real Estate Team, this has meant spending more time being an educational resource for his clients.

“During this time it will be super important to maintain your prospecting — making phone calls to current and past clients, checking in to see how they are doing and asking any questions they have about the market or inflation, and just calm any fears they might have,” Schuenke said. 

Schuenke also noted that it is now more important than ever to set realistic expectations with sellers. 

“In the last couple of years, I think people got used to the idea that a home would sell in a day or two, or maybe within a few hours, but that isn’t the case anymore. So it is really important to let clients know what they can expect prior to entering the market and making it clear that marketing is now key,” he said. 

Out in the Pasadena metro area, Tracy Do, a local Coldwell Banker agent and leader of the Tracy Do Team, is also increasing her marketing efforts.

“With prices leveling and demand decreasing, we are being mindful of our overall operating budget, but still increasing our advertising dollars,” Do said. “We are doing a lot of social media advertising and then Google ads as well and increasing the budgets on those campaigns — and then also making sure our print campaigns are also effective.”

Alison Elder, a top-producing Lake Tahoe-based Berkshire Hathaway Homeservices Drysdale Properties agent, is working on better targeted campaigns. 

“We are spending a ton of time reaching into our database and designing and launching advertising that is pertinent as we work to better touch our sphere,” Elder said. 

In addition to refining her digital marketing campaigns, Elder said she is using some of the “down time” afforded by the slower market conditions to organize her business.

“It is a good time really for any agent to take a look at their local market and set reasonable goals,” Elder said. “We are setting schedules for seasonal launches, working on better integrating with Berkshire (she moved her operation to BHHS earlier this month), developing our advertising budget, and evaluating all of the programs we have launched and what we are paying for. Are there any wasteful dollars? We are budgeting a profitable business at 20% less than this year.”

In addition to retooling their business plans, many top agents are working on furthering their real estate education through coaching and continuing education courses.

“I think no matter what profession someone is in, even if they have been doing it a long time, I don’t think you can have enough education,” Schuenke said. “Continuously figuring out and learning different things is important to staying on top of the game. Personally, I take as many classes as I can. I have a master’s degree from before I got into real estate, so education has always been a cornerstone of how I started and how I continue to conduct my business. Anytime you can grab a class that is relevant for today’s marketplace, do it.” 

While agents know they will most likely never see a housing market like 2021 or early 2022 again, they are grateful that the market shift has provided them with an opportunity to catch their breath.

“I have checked in with everyone on my team about the market forecast for 2023, and after the last couple of years where the work has been so intense, everybody is kind of happy to have a little bit of downtime,” Do said. “If that downtime extends too long, that will be another story, but for now, no one is concerned.”

Scott Michaels, who works in the formerly white-hot city of Austin, Texas, shares a similar sentiment. 

“I’ve never experienced anything like what we did from the middle of 2020 through March of 2022 and I wasn’t alone. Realtors all over were saying the same thing,” the Compass agent said. “You just did what you could to keep yourself healthy and sane.”

Michaels said the housing market slowdown has freed up time to work on parts of his business that got neglected during the height of the pandemic housing market.

“Farming your area, keeping in contact with past clients, the slowdown has allowed us to refocus on those things that are vital to keep our business thriving into the future,” Michaels said.

January 3, 2023

Inside mortgage lenders’ strategies for 2023  

Now that the refi party is over and total volume is down, lenders are fighting to gain market share

By Flávia Furlan Nunes, Housing Wire – Executives at Plaza Home Mortgage expect things to get worse before they get better. During the first three quarters of 2022, the San Diego, California-headquartered mortgage lender’s originations declined by about 38% compared to the same period of 2021, ending at $5.5 billion, according to Inside Mortgage Finance. 

Like many competitors, Plaza is losing money operationally. In turn, it has reduced its workforce and sold mortgage servicing rights (MSRs) to add some extra revenue, top executives said. 

“Obviously we had a very negative impact on the business compared to the previous year, which would be expected given the rapid rise in interest rates in 2022,” said Kevin Parra, who co-founded the mortgage lender two decades ago with James Cutri.

“I’ve been in the business since 1985, and mortgage rates are still historically low. It’s just a matter of the homebuyer psyche and, of course, an affordability problem,” Parra added.

Parra expects the landscape to remain tough for a while. 

“Builders aren’t building because they are pessimistic about buyers being able to buy homes. Sellers aren’t selling because they got a great mortgage rate in 2020 and 2021 and there’s less reason to move. So, activity will remain subdued, and home prices will fall in certain markets, but not radically,” he said. 

What Parra described are a few of the reasons that 2023 will be a challenging year for mortgage lenders — and strategies will have to pivot to accommodate for the rough landscape. Over the last few weeks, HousingWire interviewed analysts and executives to learn their expectations for 2023 and find out how they plan to run their businesses successfully in spite of challenges.  

The refi party is over for mortgage lenders

David Battany, executive vice president of capital markets at Guild Mortgage, defines 2022 as the year in which the U.S. exited the “largest government stimulus for the mortgage market in history.” 

That’s because the Federal Reserve, as part of its inflation-busting strategy, has decided to hike rates and cease new purchases of agency mortgage-backed securities, or MBS, dialing back from a program launched in 2020. 

As a result, the mortgage industry “exited the largest refi boom in U.S history,” according to Battany. 

To illustrate, mortgage originations reached $4.4 trillion in 2021, with a 62% share of refinancing. This year, the volume is expected to decline to $2.2 trillion, with the percentage of refis at 33%, per the Mortgage Bankers Association (MBA).

When the refi party ended, the consequences were seen all over the country. Mortgage lenders imposed several rounds of layoffs, cutting thousands of underwriters, processors and loan officers. The cuts at Better.com and loanDepot are some of the most dramatic examples. 

Companies exited production channels to focus on their most profitable avenues. For example, Finance of America shut down its forward mortgage business to focus on reverse mortgages and other products. 

Mergers and acquisitions have accelerated, with the latest case being Ohio-based Union Home Mortgage, which struck a deal to acquire Michigan-based Amerifirst Home Mortgage. And, for those companies not rescued by acquisitions, such as First Guaranty Mortgage Corp. and Sprout Mortgage, executives decided to abruptly close doors. 

For those who survived 2022, there’s a crossroads to face at the start of 2023, Battany said. 

“We will find out, in the next few months, if the Fed strategy is working or not to get inflation under control,” he said. 

“You can say the markets are betting there’s an 80% chance the Fed strategy will work and we will have a recession. But what if the 20% that doesn’t work happens? I think there’s a lot of hope that the strategy will work, but it’s not certain. And that uncertainty will result in volatility,” Battany added.  

Questions on the efficiency of the monetary policy were raised because, among the causes of inflation, there are many factors that the Fed does not control, such as the war between Russia and Ukraine and supply chain issues. If the monetary policy works, mortgage rates can start a downward trend, bringing relief to the mortgage market in the second half of 2023. If not, the market may become a scary place. 

Are we reaching the bottom?

Amid uncertainties, economists and analysts have already started to make their estimates for 2023. 

The MBA expects mortgage originations will decline 14% year over year to $1.9 trillion in 2023 – with tighter monetary policy and more restrictive financial conditions causing a recession in the first half of the year. According to the trade group, mortgage rates will be 5.2% in December 2023.

Analysts at Keefe, Bruyette and Woods (KBW) believe that volumes will decline 23%, with home prices down by 12.5%. 

“Overcapacity was the case this year, and it’s going into year-end. So, it seems like that won’t get resolved anytime soon,” said Bose George, mortgage sector analyst at KBW.

“At the same time, we’ve seen meaningful competition continue among the larger players, which is set up for a pretty challenging first half of the year,” George added.   

KBW’s baseline scenario doesn’t forecast that the Fed will cut rates next year, and anticipates that mortgage rates will be between “5.75% to 6% something,” according to George. 

“The MBA is assuming mortgage rates are down to the low fives in the next year. Their volume expectations are a little more positive than ours because that leads to an improvement in the back half of next year. But we’re not building that in at the moment,” he added.

For analysts at the credit analysis agency Fitch, the first quarter of 2023 may be the bottom line for the industry, despite volatility and uncertainty. 

In terms of volume, “2023 is setting up to be at least lower than 2022 in the first half, but we will need to see what happens in the second half,” Shampa Bhattacharya, director for U.S. non-bank financial institutions, said during a webinar. 

“We are going into the seasonally lower winter months, so we should expect lower volumes to continue at least for the next two quarters,” Bhattacharya said.

Bhattacharya added that for mortgage lenders, the main challenge in 2023 is to execute their strategies successfully. But what are these strategies?  

Getting a larger slice of a smaller mortgage pie 

The strategy for United Wholesale Mortgage (UWM), the largest mortgage lender in the country, to win in the purchase market is crystal clear. In June, the company announced an initiative dubbed ‘Game On,’ in which UWM slashed prices across all loans by 50 to 100 basis points, wreaking havoc on competitors with already compressed margins.

The company, which has about $800 million in cash as of the third quarter, intends to keep pushing its rivals in 2023. 

“We don’t have any intention right now to stop Game On, which has been a big win for our company,” said UWM’s chief strategy officer, Alex Elezaj. “I don’t think we need to get more aggressive on it because we are very comfortable with where we are.” 

UWM says Game On pricing is not the reason competitors exit the market, but their lack of commitment to the brokers’ community is. On the list are rivals such as loanDepot, Mountain West Financial, AmeriSave, Point Mortgage Corporation, Stearns Wholesale (owned by Guaranteed Rate) and Finance of America’s forward wholesale business. American Neighborhood Mortgage Acceptance Company LLC was also a victim. 

However, the company’s executives say cutting prices led to attracting more loan officers to the wholesale channel and gaining market share when the market is down. 

“Retail loan officers continue to convert over to wholesale, and this [Game On] was an extra incentive,” Elezaj said. 

For Elezaj, 2023 will be challenging, but UWM’s executives will focus more on what they can control. 

“I think we’ll be hovering around 6% to 8% for a little while. I don’t see any major items that would cause mortgage rates to drop in 2023,” he said. “Nobody has the crystal ball to know, but we are making sure that as the next refi opportunity comes, our wholesale brokers have the tools to execute for their borrowers.” 

The growth strategy at the retail lender Guild Mortgage is quite different. With Guild, the company has an appetite for acquisitions. 

“Whenever you see cycles like this, the value of two companies merging to become more efficient, there’s a lot of benefit to doing that,” Battany said.

He added, “As a company, we are very much committed to the mortgage market. We want to continue to grow and we look at acquisitions with companies of similar values and cultures that are high-quality retail lenders with a high customer service focus.” 

The San Diego, California-headquartered retail mortgage lender reported a total in-house origination of $4.4 billion in the third quarter of 2022, compared to $5.7 billion in the previous quarter. 

In December, Guild announced it has acquired the Wisconsin-based lender Inlanta Mortgage – which said earlier that it would be winding down operations in 2023 – to increase its purchase loans portfolio and market penetration in the Midwest. The financial terms of the acquisition were not disclosed.   

Creating opportunities in an unforgiving market

Providence, Rhode Island-based Citizens Bank, the 25th largest mortgage lender in the country, originated $18 billion in the first three quarters of the year — a 44% decline compared to the same period in 2021.  

“The first half of 2022 was very robust and the second half was challenging. We believe next year is going to be the flip prototype,” Sonu Mittal, head of mortgages, said. “We expect the market to normalize in the second half of 2023.” 

According to Mittal, despite the changes in the landscape for 2022 and 2023, the company will stick to its strategy based on taking care of customers, building relationships and right-sizing the business. A challenge is that the execution is among three different channels, as Citizens is one of a few banks that operate in retail, wholesale and correspondent. 

Mittal said that the bank continues to believe in all three channels: retail is here to serve customers; the correspondent is continuing to build healthy MSRs; and wholesale, which we know has had some intense competition, is almost 20% of the market.  

With the wholesale space in particular, rival Plaza has prepared its operations for the storm in 2023. 

Over the last few months, the mortgage lender took the opportunity to recruit former account executives from companies exiting the market, such as Stearns and loanDepot. It’s also planning to change its compensation structure, adopting a salary plus commission model rather than a draw against commission. 

According to Parra, the new model is safer from a regulatory standpoint and rewards the best producers. 

With these changes, Parra hopes for a slow return to profitability in 2023, likely in the first quarter. 

“We are using the opportunity of attrition in the industry to grow market share. If the pie is a little bigger or smaller, it doesn’t matter. What matters is how much of the pie we can get,” he said. 

As a final message, Parra said, “There’s always amazing opportunities in markets like this, which are very unforgiving markets.”

September 26, 2022

Foreclosure starts had a 15% jump in activity from July but remain 44% below pre-pandemic levels.

By Katie Jensen, National Mortgage Professional

KEY TAKEAWAYS

• Starts were initiated on 3.4% of serious delinquencies, up slightly from July but still less than half the rate seen in the years leading up to the pandemic.
• The total U.S. loan delinquency rate fell 3.6% in August to 2.79%, just four basis points above May’s 2022 record low.
• Year-over-year change in loan delinquency is down 30.26%.
• The number of borrowers a single payment past due fell by 4% and those 90 or more days delinquent down 4.5%.

Black Knight’s first look at August 2022 month-end mortgage performance statistics shows the total U.S. loan delinquency rate (loans 30 days or more past due, but not in foreclosure) fell 3.6% in August to 2.79%, just four basis points above May’s 2022 record low. Year-over-year change in loan delinquency is down 30.26%.

Improvement was broad based with the number of borrowers a single payment past due fell by 4% and those 90 or more days delinquent down 4.5%. After dropping steadily over recent months, cure activity also improved in August with 62K seriously delinquent loans curing to current status, up from 58K in July. 

The month’s 20.3K foreclosure starts represent a 15% jump in activity from July but remain 44% below August 2019 levels. Likewise, starts were initiated on 3.4% of serious delinquencies, up slightly from July but still less than half the rate seen in the years leading up to the pandemic. 

Prepays (SMM) edged up 1.5% for the month, due to calendar-related effects, but are still down by 69% year-over-year as rising rates continue to put downward pressure on both purchase and refinance lending. 

Foreclosure sales as a percentage of 90 days or more delinquent were up 0.53%, increasing 1.83% month-over-month and down 173.93% year-over-year. 

The total number of properties that are 30 or more days past due, but not in foreclosure, is 567,000, dropping 27,000 month-over-month and 772,000 year-over-year. While the number of properties in foreclosure pre-sale is 185,000, increasing by 1,000 over the previous month and improving by 43,000 from last year. 

The total number of properties that are 30 or more days past due or in foreclosure is 1,674,000, down by 54,000 month-over-month and down by 590,000 year-over-year.

Black Knight listed the top five and bottom five states in various stages of delinquency by non-current percentages. Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state. 

Top 5 States by Non-Current Percentage

Mississippi: 6.28 %
Louisiana: 5.63 %
Oklahoma: 4.71 %
Alabama: 4.62 %
West Virginia: 4.43 %

Bottom 5 States by Non-Current Percentage

Oregon: 1.98 %
California: 1.81 %
Colorado: 1.77 %
Idaho: 1.72 %
Washington: 1.70 %

Top 5 States by 90+ Days Delinquent Percentage

Mississippi: 2.37 %
Louisiana: 2.02 %
Alaska: 1.72 %
Alabama: 1.68 %
Arkansas: 1.55 %

Top 5 States by 6-Month Change in Non-Current Percentage

Hawaii: -27.50 %
Vermont: -26.11 %
New York: -22.48 %
California: -21.75 %
Utah: -20.52 %

Bottom 5 States by 6-Month in Non-Current Percentage

Iowa: -4.32 %
South Dakota: -6.19 %
Illinois: -7.77 %
Alaska: -8.34 %
Oklahoma: -8.43 %

September 15, 2022

U.S Houses Passes VA Appraisal Modernization Legislation

By Katie Jensen, National Mortgage  Professional --  'This legislation is an important first step towards broad modernization of VA appraisal processes.'

KEY TAKEAWAYS

• The appraisal modernization legislation will let veterans use the same modern purchasers tools that non-veteran buyers already use. 
• In today’s hot market, veterans struggle to gain access to the fastest and best appraisal resources.
• However, MBA Vice Chair Mark Jones expressed concern about the future increase in VA mortgages financing fees.

The U.S. House of Representatives passed legislation that will improve access to VA home loans.

The move was praised by the Mortgage Bankers Association (MBA) as an "important first step" to modernizing the VA appraisals process.

U.S. Rep. Mike Bost of Illinois and U.S. Sen. Dan Sullivan introduced the bill to streamline the home buying process for veterans and their families. 

“VA home loans have given millions of veterans and their families the opportunity to purchase a home,” said Bost. “Yet, on average, veterans wait longer and pay more during the closing process due to VA’s out-of-date appraisal requirements. That’s why I am introducing the Improving Access to the VA Home Loan Act of 2022 today. This bill will make sure that veterans are not unfairly disadvantaged during the home buying process and allow for a modern, digital appraisal process, which will get them into their new home faster.”

In today’s hot market, veterans struggle to gain access to the fastest and best appraisal resources to get them into their new home as quickly as possible. The appraisal modernization legislation will let veterans use the same modern purchasers tools that non-veteran buyers already use. 

Last March, the FHFA allowed hybrid appraisal — which gained popularity during the pandemic — to become a permanent fixture. Fannie Mae and Freddie Mac also accept appraisals conducted remotely. Remote or “desktop” appraisals use public record listings for comps and tax appraisals for purchase loans. 

MBA is grateful to the House for passing with bipartisan support this commonsense bill to make VA home loan financing more accessible and affordable to our nation’s servicemembers, veterans, and their families by accelerating the updating of the Department of Veterans Affairs’ (VA) rules and program guidelines that govern home appraisals,” Bob Broeksmit, CMB, President and CEO of MBA said. 

“The bill will encourage important reforms to the agency’s requirements regarding when an appraisal is necessary, how appraisals are conducted, and who is eligible to conduct an appraisal. This legislation is an important first step towards broad modernization of VA appraisal processes and could make veterans’ home purchase offers more viable in today’s competitive housing market."

The bill is now headed to the U.S. Senate. 

“MBA now urges the Senate to pass a companion measure, S. 4208, introduced by Sen. Dan Sullivan, as swiftly as possible to ensure active and retired service members throughout the country have access to more affordable, sustainable homeownership opportunities.”

MBA Vice Chair and CEO of Amerifirst Home Mortgage, Mark A. Jones, testified before the House VA Subcommittee on Economic Opportunity in May 2022 and commended Bost for introducing the bill to Congress. 

However, Jones expressed concern about the future increase in VA mortgages financing fees.

“The MBA urges Congress to ensure that these funding rates are set at a level commensurate with the risks associated with VA-guaranteed housing loans, and to monitor and analyze past funding fee increases, rather than demanding further increases,” Jones said.

Jones added that past increases in funding fees may have led to a “mismatch of funding fees with the actual risk profile of veteran borrowers.”

August 26, 2022

 Are Investors Fueling the Rapid Decline in Housing Affordabilty?

By Xander  Snyder, First American Economic Insights --   According to data from First American Data & Analytics, investor purchases of residential homes as rental properties as a share of all residential home sales, have increased sharply in the last year, rising from 10.5 percent in May 2021 to nearly 18 percent in May 2022. Increasing investor participation in the residential housing market has coincided with remarkable growth in house prices, leading some to attribute the worsening housing affordability crisis to the increase in investor participation.

However, an equally plausible explanation is that rapid house price appreciation enticed greater investor participation in the market. Given the ongoing affordability crisis, understanding this dynamic can provide helpful insight into what we can expect as the market transitions.

It turns out, as one might expect, that house price growth and investor participation are positively correlated. While there is substantial variation from city to city, we found cities with a larger investor share of sales generally experienced greater house price growth over the last year. For example, Phoenix, Atlanta and Jacksonville had the largest investor share in May as well as some of the fastest year-over- year house price growth rates in the country.

The top five cities by investor share in May 2022 were:

• Phoenix
  • Investor share: 32 percent
  • Annual house price growth: 28 percent
• Memphis, Tenn.
  • Investor share: 31 percent
  • Annual house price growth: 18 percent
• Atlanta
  • Investor share: 30 percent
  • Annual house price growth: 27 percent
• Jacksonville, Fla.
  • Investor share: 29 percent
  • Annual house price growth: 31 percent
• Las Vegas
  • Investor share: 28 percent
  • Annual house price growth: 28 percent

August 4, 2022

 Expected Slowing Driving Uptick in Mortgage Risk

By Kayle G. Horst, DSNews --According to Milliman’s latest Mortgage Default Index (MMDI) covering the first quarter of 2022, mortgage originations continued a decline recorded over the last three quarters due to increased interest rates and a decline in originations and refinances. 

The index value of the MMDI rose to 2.39% for originations during the first quarter of 2022 compared to 1.90% recorded during the fourth quarter of 2021. For both purchase and refinances, the primary driver of this increased default risk is an expected slowdown of home price growth expected over the next several years. 

Looking at borrower risk, the risk level for government sponsored enterprise (GSE) loans increased from 1.35% during the fourth quarter of 2021 to 1.43 in 2022. Refinance loans once again continued to make up the bulk of the loan originations at about 57% of total originations. This number is in line with numbers with the third and fourth quarters of 2021. 

This means that for loans originating in the first quarter, the expectation is that 2.39% will become delinquent (180 days or more) over their lifetimes. 

Due to the fact that Freddie Mac released data indicating refinance loan volume has declined in light of rising rates, Milliman stated that they expect the MMDI to increase starting with the next quarterly release, reflecting greater borrower risk from purchase mortgages. 

July 12, 2022

The 0.3% decrease indicates that lending standards are constricting.

By Sarah Wolak, Nation al Mortgage Professionals.

KEY TAKEAWAYS

• The Conventional MCAI increased 1.2%, while the Government MCAI decreased by 1.7%.
• According to MBA, the decline was offset by increased offerings for conventional ARMs and high-balance loans.

Mortgage credit availability decreased in June, according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) that analyzes data from ICE Mortgage Technology. 

The MCAI fell by 0.3% to 119.6% in June. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

The Conventional MCAI increased 1.2%, while the Government MCAI decreased by 1.7%. Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 1.4%, and the Conforming MCAI rose by 0.6%.

“Mortgage credit availability decreased slightly in June, as significantly higher mortgage rates compared to a year ago slowed refinance and purchase activity and impacted the overall mortgage credit landscape," said Joel Kan, MBA's associate vice president of economic and industry forecasting. "Credit availability was mixed by loan type, with the conventional index up 1.2% and the government index down 1.7%.”

Kan continued, "Although there was reduced supply of lower credit score, high LTV rate-term refinance programs, the decline was offset by increased offerings for conventional ARM and high-balance loans. With higher rates and elevated home prices, more prospective buyers are applying for ARMs, but activity remains below historical averages.”

He added, “The decline in the government index was driven by the reduction in offerings for streamline refinance products from FHA and VA, which is the continuation of an ongoing trend reported in prior months.” 

June 27, 2022

Mortgage delinquency rate falls to historic low 

Serious delinquency level is still 45% higher than pre-pandemic

 By Connie Kim, Housing Wire -- The national mortgage delinquency dropped to an all-time low in May, continuing two consecutive months of a decline since March. 

The overall delinquency rate slightly dropped five basis points from April to 2.75% in May, according to Black Knight. The delinquency rate is 42% lower than the same period a year ago.

A total of 1.46 million properties were in early-stage delinquencies, defined as borrowers who missed a single mortgage payment, which is a slight increase of 0.2% from April due to typical seasonal patterns. It’s more than a 71% drop from the same period in 2021. 

“Mortgage performance continues to be strong, with inflow of new delinquencies still running below pre-pandemic levels,” said Andy Walden, vice president of enterprise research at Black Knight. “With fewer new borrowers becoming delinquent, both overall and early-stage delinquency rates continue to trend downward.” 

Some 595,000 properties were considered seriously delinquent, in which loan payments are more than 90 days past due, but not in foreclosure. That metric dropped 7% in May from the previous month. However, the number of properties in serious delinquency were 45% above pre-pandemic levels. 

The country is still working through a surplus from the serious delinquencies that surged in the second quarter of 2020 as borrowers struggled to pay back their loans at the start of the pandemic, Walden said. 

June 8, 2022

Mortgage demand falls to the lowest level in 22 years amid rising rates and slowing home sales  

By Diana Olick, CNBC News  

KEY POINTS  

• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40% from 5.33%.  
• Applications for a mortgage to purchase a home fell 7% for the week and were 21% lower than the same week one year ago.  
• Refinance demand dropped 6% for the week and was down 75% year over year.  *Mortgage rates are back on the upswing, after a brief decline in May, and the housing market is still suffering from a lack of listings. As a result, mortgage demand continues to drop.  

Total mortgage application volume fell 6.5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand hit the lowest level in 22 years.  

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40% from 5.33%, with points rising to 0.60 from 0.51 (including the origination fee) for loans with a 20% down payment.  

Refinance demand, which is most sensitive to weekly rate moves, fell another 6% for the week and was 75% lower than the same week one year ago. The vast majority of mortgage holders now have rates considerably lower than the current one, and even those who would like to pull cash out of their homes are choosing second mortgages, rather than refinancing their first liens.  

“While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” said Joel Kan, an MBA economist.  

Applications for a mortgage to purchase a home fell 7% for the week and were 21% lower than the same week one year ago.  

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers,” Kan said.  

Mortgage rates moved even higher to start this week, according to a separate survey by Mortgage News Daily. Rates have been in a narrow range for several weeks after moving decidedly higher in the previous months.  

“There’s some chance that the upper boundaries of that range end up being a ceiling for rates, but that will depend on inflation and other incoming economic data,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “With a key inflation report set to release on Friday morning, the potential for volatility remains high.”

June 2, 2022

Mortgage rates steady at 5% as housing supply increases

While the potential homebuyer pool has shrunk, supply is increasing  

By James Kleimann, Housing Wire – Purchase mortgage rates this week averaged 5.09%, essentially flat from the prior week, according to the latest Freddie Mac PMMS.  

A year ago at this time, 30-year fixed rate purchase rates were at 2.99%. The government-sponsored enterprise index accounts solely for purchase mortgages reported by lenders during the past three days.  

“Mortgage rates continued to inch downward this week but are still significantly higher than last year, affecting affordability and purchase demand,” said Sam Khater, Freddie Mac’s chief economist. “Heading into the summer, the potential homebuyer pool has shrunk, supply is on the rise and the housing market is normalizing. This is welcome news following unprecedented market tightness over the last couple years.”  

The purchase index has now fallen for three consecutive weeks.  Black Knight’s Optimal Blue OBMMI pricing engine, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages – measured the 30-year conforming mortgage rate at 5.42% Wednesday, up from 5.32% the previous week.   

The 30-year fixed-rate jumbo was at 4.97% Wednesday, also up from 4.90% the week prior, according to the Black Knight index.   *This week, mortgage application volume dropped 2.3% from the past week to a four-year low: refi applications declined 5% and purchase apps decreased 1%, according to the MBA. The MBA found the adjustable-rate mortgage share dipped to 8.7% of total applications.  

Mortgage rates are following the Federal Reserve’s (Fed) inflation-fighting monetary policy. Minutes from the Fed’s meeting earlier this month released Wednesday showed policymakers emphasized the need to quickly raise interest rates to bring consumer prices closer to the Fed’s 2% goal.   

The central bank raised the interest rate by a half percentage point on May 4 and unveiled a plan to reduce its $9 trillion asset portfolio. The Fed also has repeatedly signaled it will continue to raise rates in 2022 and into 2023.  

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.32% with an average of 0.8 point, up from last week’s 4.31%. The 15-year fixed-rate mortgage averaged TK%  *The 5-year ARM averaged 4.04%, with buyers on average paying for 0.3 point, up from 4.20% the week prior. The product averaged 2.64% a year ago.   

Economists forecast the tightening monetary policy will reduce origination volume significantly in 2022 and 2023. The MBA expects loan origination volume to drop more than 35% to about $2.5 trillion this year, from last year’s $4 trillion. Meanwhile, the MBA expects 5.93 million home sales in 2022, compared to 6.12 million in 2021.

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May 2, 2022

Home affordability is nearly the worst on record as mortgage rates spike  

By Diana Olick, CNBC.com

KEY POINTS :

• The average rate on the popular 30-year fixed started this year at 3.29% and hit 5.55% on Monday, according to Mortgage News Daily. 
• The vast majority, 95%, of the 100 largest U.S. housing markets are now less affordable than their long-term levels, up from just 6% at the start of the Covid pandemic, according to Black Knight data. 
• If rates were to rise just 50 basis points more or home prices were to increase just 5% more, home affordability would be the worst on record.  

Mortgage rates just hit their highest level since 2009, and home prices are continuing to experience double-digit gains. Now, nearly all of the major housing markets in the United States are less affordable than they have been historically, and affordability is near its worst point on record.  

New calculations from Black Knight, a mortgage technology and data provider, show that 95% of the 100 biggest U.S. housing markets are less affordable than their long-term levels. That figure was at 6% at the start of the Covid pandemic. Thirty-seven markets are less affordable than they have ever been.  

Home price gains did pull back slightly in March, but they were still up 19.9% year over year. Compared with February, prices rose 2.3%, the fifth time since the pandemic began when home prices rose more than 2% in a single month. Prices were up 5.9% in the first three months of the year. Consumers are grappling with rising prices across categories, from real estate to airfare to groceries.  

The average rate on the popular 30-year fixed started this year at 3.29% and hit 5.55% on Monday, according to Mortgage News Daily. Rates could move even higher after Wednesday’s Federal Reserve meeting, when markets will get more commentary on the Fed’s drive to curb inflation.  

Homebuying affordability has not been this bad since July 2006, when rates were around 6.75%. Then, it took about 34% of the median income to cover the monthly mortgage payment, including principal and interest, for a home purchased with a 20% down payment.  

As of April 21, that payment-to-income ratio had reached 32.5%. Historically, a ratio above 21% has caused the housing market to cool off, with the exception of the last two years. The pandemic has created an anomaly in the housing market, because demand is so high and supply is so low.  

If rates were to rise just 50 basis points more or home prices were to increase just 5% more, home affordability would be the worst on record, according to Black Knight. (Of those two factors, the 5% rise in prices would be more likely.)  

It is often said in the housing market that consumers don’t buy the home price, they buy the monthly payment. That payment is at a new high, up $552 (an increase of 38%) year to date to $1,809, and up $790 (or 72%) since the onset of the pandemic.  

In reaction to weaker affordability, consumers are suddenly turning to adjustable-rate mortgages, which offer a lower interest rate. The ARM share of rate locks from potential homebuyers jumped from 2.5% in December to nearly 8% in March, according to Black Knight. As of last week, that share was more than 9%, according to the Mortgage Bankers Association.

April 8, 2022  

Housing Bubble Pop Likely If Mortgage Rates Hit 5.75%  

It may not be as destructive as 2008 due to some factors

By Keith Griffin, National Mortgage Professional News  – The chief investment officer Americas, UBS Financial Services, is advising her clients a housing bubble is possible in the near future. The magic number is a 5.75% 30-year fixed rate mortgage - and that’s fairly near.  

KEY TAKEAWAYS  

• A 5.75% mortgage rate could lead to a pop in the housing bubble. 
• Better underwriting makes it less severe than 2008. 
• Small percentage of adjustable-rate mortgages helps, too.  

As National Mortgage Professional reported yesterday, the daily fixed rate has topped 5.25% this week. The Federal Reserve has already signaled interest rate increases for the remainder of 2022 to keep inflation at 2% down from its current rate of almost 8%.  

In her client note entitled “Mortgage mania,” Solita Marcelli, GWM Chief Investment Officer Americas, UBS Financial Services, writes, “Monthly mortgage payment as a percentage of median household income, a metric of affordability, is now approximately 28% compared with 31% during the housing bubble of the mid-2000s. Assuming flat home prices, we estimate that mortgage rates would have to surpass 5.75% for the payment to income ratio to exceed the housing bubble.”  

She adds, “In addition, although mortgage rates are still historically low, we expect the sudden move in rates to have some psychological impact on buying behavior in the near term, especially for entry level and first-time homebuyers. The impact would also likely vary across regions, with expensive coastal markets in California and Hawaii likely being more negatively impacted on a dollar payment basis.”  

Attom, a research data company, said today the percentage of income stands at 26.3% of average wages needed to buy a median-price home. That is at the highest point since the third quarter of 2008. It was up from 24.9% in the fourth quarter of 2021 and 21.8% in the first quarter of last year – the largest annual increase since at least 2005. The Attom research says, in general, home affordability has gotten tougher across the U.S. as prices and mortgage rates surge.  

Marcelli says there are benefits to a housing slowdown. “We believe a deceleration in the rate of home price appreciation would actually be a positive for the housing market as it would narrow the gap between wage and home price growth,” she said.  

She also notes, though, this may not be an explosive housing bubble burst like that experienced in 2008. The primary reasons are better underwriting conditions, more responsible buyer behavior, and a substantial homeowner equity base.  

While adjustable-rate mortgages obviously aren’t a sign of bad behavior, they can put people on the street if payments become unaffordable. Marcelli said, “The rise in mortgage rates is unlikely to affect homeowners as much this time around. In 2005, 40% of mortgages were adjustable rate – today that figure is about 1%.”

March 14, 2022  

Share of Homes Selling Above List Price 

Doubles  Daily Dose, DSNews – This month marks the two-year anniversary of the coronavirus pandemic, which the World Health Organization officially declared on March 11, 2020. According to a new report from Redfin, the housing market has changed drastically as there are now half as many homes to choose from, as prices increased 34%. Overall, the number of homes on the market is down 49.9% from 2020 to a record low of approximately 456,000.

Remote work and record-low mortgage rates motivated scores of Americans to relocate during the pandemic, intensifying a housing shortage that began in the wake of the 2008 financial crisis. With few homes available to purchase, house hunters have waged fierce bidding wars, causing prices to rise. The median home sale price is now $369,125, the highest on record and up 33.6% from $276,225 in 2020. That’s a significantly larger jump than the prior two-year period, where home prices grew an estimated 10%.

The share of homes selling for above list price has doubled, while homebuyers are now twice as likely to pay more as they strive to beat out the competition. Nationwide, 46.3% of homes sell for more than the asking price, up from 21.8% in 2020. Nearly 6,000 homes have sold for $100,000 or more over asking price so far this year, up from 2,241 during the same period last year. The typical home sells in just 25 days, down from 53 days in 2020. A record 44.7% of homes sell within just one week, compared with 30.8% two years ago.

A record 70% of home offers written by Redfin agents faced bidding wars on a seasonally adjusted basis in January. That’s up from 33.4% in April 2020, the earliest month in Redfin’s records. An offer is considered part of a bidding war if a Redfin agent reported that it received at least one competing bid.

Some 32.4% of Redfin.com users nationwide looked to move to a different metro area in January, up from the previous peak of 31.5% in Q1 of 2021, and significantly higher than before the pandemic.*  The most popular destinations in January were Miami, Phoenix, Tampa, Sacramento, and Las Vegas. Relatively affordable, warm metros usually top the list, and have only become more popular during the pandemic as people have left expensive coastal markets in search of lower prices and more space in the Sun Belt. San Francisco, Los Angeles, New York, Seattle and Washington, D.C. were the top metros homebuyers looked to leave in January.

Mortgage rates are back above pre-pandemic levels after hitting an all-time low of 2.65% in January 2021. The average 30-year fixed mortgage rate was 3.76% during the week ending March 3, 2022, according to the latest data from Freddie Mac. That’s up from 3.29% two years earlier, when early signs of the pandemic had already started to put downward pressure on mortgage rates. Rates surged at the end of 2021, though they’ve dropped slightly in recent weeks as Russia’s invasion of Ukraine has shaken global financial markets.

Homebuyer demand for second homes was up 87% from pre-pandemic levels in January—the most recent period for which data is available. That’s the highest level in a year and just shy of the record 90% gain in September 2020. It’s worth noting that preliminary February data suggests second-home demand slowed as mortgage rates jumped.

Interest in second homes surged during the pandemic because many affluent Americans purchased vacation properties to escape crowded, boarded-up cities. Additionally, some Americans bought second homes not as vacation properties, but as full-time residences to live in while they rent out their old homes.

To view the full report, including charts and methodology, click here.