Price and Rate Reductions Already Boosting Affordability

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Sharp Credit – Credit News – Credit Information

Earlier this week CoreLogic reported that the annual rate of
appreciation in January, 4.2 percent, was exactly two-thirds the rate in
January 2018.  The Black Knight Mortgage
Monitor essentially confirms that deceleration, reporting price increases
dropping from 6.8 percent last February to 4.6 percent at year end. 

Ben Graboske, president of Black
Knight’s Data & Analytics division, explained that while home prices are
still up year-over-year
in all 50 states and the nation’s 100 largest markets,
slowing is noticeable nationwide and – combined with recent interest rate
reductions – is helping to improve the overall affordability outlook.

 “At the end of December, home prices at the
national level had fallen 0.3 percent from November for their fourth
consecutive monthly decline,” he said.  “As
a result, the average home has lost more than $2,400 in value since the summer
of 2018. And while home prices are still up on an annual basis, the slowdown
continues nationwide and, importantly, is not being driven by seasonal effects.
December marked the 10th straight month of slowing annual home price
appreciation
.”

He added, “With more than 50 percent
of areas reporting, early numbers for January suggest we’re likely to see more
of the same. That said, it’s important to keep in mind that annual growth is
still outpacing the 25-year average of 3.9 percent – although the gap is
closing quickly. Also, it’s yet to be seen what impact the recent pullback in
interest rates may have on the national home price growth rate.

The slowdown has been especially apparent in the West.  While some interior states are still seeing
large gains – Nevada, Idaho, and Utah saw the greatest increases in the nation
with Nevada still in the double digits – large metro areas on the coast have
seen appreciation rates plummet.

Black Knight looked at the 10 largest markets in California and at
Seattle and found that eight of them had seen their appreciation rate cut in
half over the previous 10 months and by 70 percent in five of them.  While prices in Washington State as a whole
are still increasing by 5.7 percent, Seattle’s several year double digit run has
evaporated. The annual rate is now 3.1 percent.

 

 

While California is still the least affordable state in the
country, it currently requires 36 percent of the median household income to
make principal and interest payments on the average home purchase, the
affordability picture is brightening in many areas. 

 

 

Black Knight says moderating prices, coupled with falling interest
rates, have made housing the most affordable it’s been since early last
year.  Lower interest rates alone have
translated into 6 percent more buying power while keeping monthly payments the
same.  It now takes 22.2 percent of
median income to purchase the average home with 20 percent down and a 30-year
loan compared to the post-recession high of 23.4 percent just a few months ago.  It is also well below the long-term average
of 25 percent in the last 1990s and early 2000s and certainly lower than the peak
of 45 percent just prior to the housing crisis.

 

 

Falling
rates have continued to increase refinancing incentives as well.  With the 30-year fixed rate at 4.35 percent
as of late February, the number of homeowners who could qualify for a refinance
and reduce their interest rate by at least 75 basis points had risen to 3.27
million.  This is up 75 percent from the
10-year low in the refinance pool in November.

The
vast majority, more than 85 percent, of the homeowners who could benefit from
refinancing are those who took out their mortgages more than seven years ago
and have not chosen to refinance during periods of even lower rates. Still,
Black Knight notes that there are more than 250,000 homeowners who took out
mortgages last year and could likely reduce their interest rate significantly
by refinancing.

But
if refinancing opportunities are up, prepayments are not.  Black Knight said January saw the fewest
repays
, usually an indication of refinancing activity, since November
2000.  The rate declined 10.15 percent
year-over-year as seasonally low home sales outweighed any rise in refinancing
incentive. 

High
credit score borrowers are generally more reactive to falling interest rates,
but Black Knight says the current prepays are noticeably uniform across credit
buckets.  Less than 1 percent separates
the conditional prepayment rate of those with scores below 620 and those above
720, the smallest spread in 18 years. Over 60 percent of active mortgages today
have credit scores over 720 compared to 50 percent at the previous low point in
2008.

 

 

While
there has been a lot of attention paid to delinquency rates following
hurricanes Harvey, Irma, and Florence that hit Texas, Florida, and North
Carolina in 2017 and 2018, not much has been said about those in the aftermath
of Hurricane Maria in Puerto Rico. While the territory is not counted in
national delinquency statistics, high defaults and foreclosures are an economic
factor for lenders and investors.

Black
Knight now reports that mortgage performance on the island has continuously
improved during 2018. 
At the peak the
total non-current rate hit 36.8 percent, but has now fallen to 14.4 percent,
only slightly above the pre-storm rate. 
Other measures of delinquency have improved dramatically as well.

First lien performance (bar graph) p 7

The
company says delinquencies have probably not yet peaked following the two 2018
storms, Michael and Florence, but looking at the 2017 disasters as well at
Hurricane Katrina in 2005, the recovery from Irma was the fastest during the first
12 months after landfall.

 

 



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