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  • The Black Knight Mortgage Monitor for November 2023 shows rising mortgage rates and home prices have increased the principal and interest payment (P&I) for a median-priced home by $144 per month over the past 30 days to more than $2,500 for the first time.

Black Knight, Inc. released its Mortgage Monitor report, which shows an increase of $144 a month over the past 30 days in the principal and interest payment (P&I) for a median-priced home—-driving the total payment over $2,500 for the first time. 

Monthly P&I reached $2,567—an increase of $1,240 (+94%) over the past two years. 

That monthly P&I now takes 40.6% of the median household income, after averaging 25% for the past 35 years, making this the least affordable housing market since 1984. 

As a result, purchase mortgage applications for the week of October 26th dropped to 47% below pre-pandemic levels, reaching their lowest since mortgage rates began to rise. 

As Andy Walden, ICE Vice President of Enterprise Research, explains, October’s surging mortgage rates made it a particularly challenging month for prospective homebuyers. 

For all but a single day, interest rates spent the entire month of October above 7.5%, topping out at 7.80% on Oct. 25, according to our ICE U.S. Conforming 30-Year Fixed Mortgage Rate Lock Index. Mortgage rates haven’t been that high in 23 years, which continues to hammer affordability. The situation was already dire, but recent weeks have seen rates climb to where it now takes nearly 41% of the median monthly income just to make the P&I payment needed to purchase the median-priced home. That payment has risen by $144 over the past 30 days and now sits above $2,500 a month for the first time in history. Keep in mind, that record-high payment doesn’t include taxes, insurance or any HOA fees that may be part of the homeowner’s monthly expenses. For the last 35 years, the share of income needed to cover P&I has averaged below 25%. Affordability pressure is not coming from interest rates alone, though. The last time affordability was this bad in the 80s, rates were in the double digits and the average home was about 3.5 times median income, in stark contrast to today’s price-to-income ratio of nearly 6-to-1.

Andy Walden

ICE Vice President of Enterprise Research

High rates and lower demand could lead to lower home prices in Q4 2023

Meanwhile, the acceleration of annual home price growth continued at +4.3% in September, though the monthly increase (+0.39%) was the smallest since January and a significant drop from August’s revised monthly gain of 0.61%. 

That said, with rates around 7.5%, affordability has reached a 39-year low, and purchase applications have taken a hit. 

Rising home prices have also driven up mortgage-holder equity to within 2% of last year’s record highs, reaching $16.4T in Q3—$10.6T of which is available for mortgage-holders to borrow against while maintaining a 20% equity stake in their home. 

Getting back to long-run affordability levels would require some combination of the following:

  • A 4.4 percentage point decline in the 30-year fixed mortgage rate
  • A 62% increase in median household income, or 
  • A 38% drop in the median home price

None of the above can solve our housing affordability issues alone. But then, none of them tend to move independently of one another, anyway. 

Historically tight inventory levels have been further bolstering prices, which hit yet another all-time high in September, with the annual growth rate accelerating to 4.3% from effectively flat just four months before. That said, the pace of monthly gains slowed to +0.39% in September, marking the smallest seasonally adjusted gain since January. Rates are up 75 basis points from when September’s closed sales went under contract, which has cut consumer buying power by another 8% in the time since. Now, with rates above 7.5% and affordability at a 39-year low, it’s fair to expect prices to weaken later in 2023.

Andy Walden

ICE Vice President of Enterprise Research

Refinance activity has primarily been cash-out transactions

While purchase lending has accounted for more than 85% of all mortgage loan volume in recent months, Walden pointed out that recent refinance activity has primarily been equity-driven cash-out transactions. 

The rate/term refinance market is essentially non-existent today. In fact, the refinance market in general is but a shadow of what it once was. There are pockets of cash-out lending occurring among a particular set of borrowers, but even that has been a niche market. Given that homeowner equity has risen alongside home prices and is now within 2% of the peaks we saw in 2022, it makes sense that cash-outs would still appeal to some borrowers. Together, U.S. mortgage holders have some $16.4T of equity in their homes. Of that total, $10.6T is what we refer to as ‘tappable equity,’ meaning the amount a homeowner could borrow against while keeping at least a 20% equity stake in their property. Unfortunately, with borrower retention at a 17-year low, lenders are losing customers seeking to tap equity via cash-outs. What’s notable is that they are losing this business not due to their rate offerings, but rather an inability to identify and market to those borrowers likely to transact in today’s market.

Andy Walden

ICE Vice President of Enterprise Research

Read the full Mortgage Monitor report for more information.