As housing affordability nears bottom amid rising interest rates and ever-rising prices, borrower behavior and preferred products are changing
– According to the Black Knight HPI, home prices rose 2.3% in March alone, marking the fifth time in the pandemic era that homes have risen more than 2% in a single month
– The annual rise in house prices slowed very slightly in March, with an annual appreciation of 19.9%, compared to an upward revision of 20.1% in February – the first month ever to see higher price growth at 20%
– With 30-year mortgage rates at 5.11% as of April 21ththe median income share needed to make the principal and interest (P&I) payment on the house at the average price is now 32.5%
– That’s within 1.6 percentage points of the all-time high payout-to-revenue ratio of 34.1% seen in July 2006
– Just another 50 basis point hike in rates or a 5% rise in house prices would push affordability to its worst level on record, and they are already up 200 basis points and 5.9% respectively since the beginning of 2022
– 95 of the 100 largest US markets are now less affordable than their long-term benchmarks (1995-2003), compared to six markets at the start of the pandemic
– Thirty-seven markets – representing almost a third of the country – are now the least affordable they have ever been
– Rate lock data from Optimal Blue showed an increase in adjustable rate mortgages (ARMs) as they seek to navigate an increasingly difficult housing market
JACKSONVILLE, Florida., May 2, 2022 /PRNewswire/ — Today, the Data analysis division of Dark Knight, Inc. (NYSE:BKI) released its latest Mortgage monitor report, based on the company’s state-of-the-art mortgage, real estate and public records datasets. As house prices and interest rates continue to soar, this month’s report looks back at the growing affordability pressures resulting from these competing dynamics. According to the President of Black Knight Data & Analytics Ben Graboskalthough house price appreciation slowed in March – albeit ever so slightly – 30-year mortgage interest rates above 5% pushed affordability very close to its all-time worst.
“After accelerating over the past four months, the annual house price growth rate actually slowed down quite a bit in March,” Graboske said. “Yet at 19.9% – up from an upward-revised 20.1% in February – March would otherwise have set another all-time high in appreciation. 6% nationwide with nearly 25% of the nation’s largest markets seeing gains of more than 7% in the last three months alone, with 30-year interest rates hitting 5.11% dated April 21ththe impact of these price increases on housing affordability is significant.
“As measured by the share of median income needed to make the P&I payment on the average-priced home purchased with a 20% down payment, housing in the United States was the least affordable of all time. July 2006 when it took 34.1% to make that P&I payment. At the end of February 2022, we were already at 29.1% – and rates and prices have been climbing ever since. From April 21th, that payment-to-revenue ratio has now climbed to 32.5%, just 1.6 percentage points from the previous high. In terms of a “kitchen table”, this is equivalent to a $522 higher average monthly P&I payment – a 38% increase since January – with this payment on the rise $790 (+72%) since the start of the pandemic. It won’t take much to push us beyond 2006 levels either; a 50 basis point jump in 30-year offers or a 5% rise in house prices would push affordability to its worst level on record. And that said, we also have to keep in mind that they have already risen 200 basis points and 5.9% respectively this year.”
Leveraging lock-in rate data from Optimal Blue, a division of Black Knight, this month’s Mortgage Monitor shows that this market dynamic has made ARMs increasingly attractive to borrowers. Indeed, the spread between 30-year and ARM offers is now the widest since 2014, and less than 20 basis points from a record high. In mid-April, the average 5/1 ARM had an initial rate 1.3% lower than 30-year mortgages. In turn, ARM’s share of volume purchase rate locks rose from 2.5% in December to nearly 8% in March, the highest share since Optimal Blue began reporting the metric in 2017.
While the share of ARMs is now at or near a post-Great Financial Crisis peak, it still pales in comparison to the 40%+ purchases made through ARMs at the peak in 2005. The risk characteristics of these loans also remain cautious: ARMs with introductory periods of 7-10 years make up the vast majority of ARM inceptions (85% in 2021) and the average debt-to-income ratio among March ARM rate locks remained lower at 31%. The current average ARM credit score of 757 is also the highest since at least 2017, and the number of outstanding ARMs is the lowest in more than 20 years. Still, nearly 1.4 million active ARMs are in the adjustment phase and could face rate increases – and subsequently payment – in the coming months, due to sharp increases in indices. underlying ARMs. Black Knight will continue to monitor the situation in the coming months.
Finally, although appetite for “extended guideline” purchase loans – an indicator of the non-qualified (non-QM) mortgage market – was virtually non-existent at the start of the pandemic, rate lock-ins on these loans have since reached a multi-year high attributable to widening spreads, tightening affordability and increased investor appetite. Although these loans accounted for only about 3% of all lock purchases in recent months, they are worth watching given the continued market shifts.
About Mortgage Monitor
Black Knight’s Data & Analytics division maintains the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the global market, including tens of millions of loans across all of Black Knight’s products. credit and over 160 million historical records. . The combined view of home price and real estate data from Black Knight HPI and Collateral Analytics provides one of the most comprehensive, accurate and timely measures of home prices available, covering 95% of US residential properties up to at postcode level. Additionally, the company maintains one of the strongest databases of public property records available, covering 99.9% of the US population and households in over 3,100 counties.
Black Knight’s research experts carefully analyze this data to produce a summary supplemented by dozens of tables and graphs that reflect trends and point observations for the Monthly Mortgage Monitor Report. To view the full report, visit: https://www.blackknightinc.com/data-reports/
About the Dark Knight
Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage and real estate lending and servicing industries, as well as the capital and secondary markets. Businesses leverage our robust integrated solutions across the homeownership lifecycle to help retain existing customers, win new customers, mitigate risk and operate more efficiently.
Our customers rely on our proven, comprehensive, and scalable products and our unwavering commitment to providing superior customer support to achieve their strategic goals and better serve their customers. For more information on Black Knight, please visit www.blackknightinc.com/.
SOURCEBlack Knight, Inc.