Housing Collapse Coming Right Up

by Mish Shedlock, The Maven:

Mortgage rates are high and rising. Refinancing opportunities are nonexistent; home affordability has collapsed.

The latest Black Knight Mortgage Monitor is worth a very close look.

Here’s what the report says about the feature chart.

1. Recent rate jumps coupled with climbing home prices have increased the cost to purchase the median home by $67/month (+6 percent) over the past six weeks.
2. Overall, it costs $1,141 in monthly principal and interest to purchase the median home using a 30-year fixed mortgage with 20 percent down, the largest monthly payment required since late 2008.
3. It currently takes 23 percent of the median income to purchase the median home, the highest share since 2009.
4. However, overall affordability remains better than long-term historical averages, even taking the recent rate jump into consideration. Purchasing the median home requires one percent less of the median income than 1995-1999, three percent less than 2000-2003 (before the sharp run-up in home prices) and two percent below those combined benchmarks (1995- 2003).
5. Average incomes are more than 20 percent higher today than in 2006 (according to the Census Bureau) and interest rates 2.3 percent lower. As such, affordability remains much better than at the pre-recession peak, even though today’s home prices have surpassed 2006 levels.
6. Assuming all else remains equal, to return to 2006 affordability levels, interest rates would have to climb north of 8.0 percent or the median home price increase to $420K.

Statistical Nonsense

Black Knight is correct on points 1-3. Statistically, it is correct on points 3-6. However …

Regarding point 5: It’s not average incomes that matter, it’s median incomes.

And real median incomes have declined in seven out of the last 11 years.

Regarding points 4 and 6: Those who want a home and can afford a home have a home. The rest struggle because incomes have not kept up with home prices.

Notions of affordability are statistical nonsense. Black Knight does mention some of these issues in relation to other charts.

Home Price Appreciation by Tier

1. Rising interest rates may put more pressure on borrowers with below average incomes buying below average priced homes.
2. Affordability is lower in those segments compared to long-term benchmarks, and rising interest rates put more strain on affordability.
3. The annual rate of appreciation on Tier 1 properties (lowest 20 percent by price) is 1.9 percent higher than the overall market average.
4. Although the margin has declined in recent months, as of December 2017, the Tier 1 annual rate of appreciation was 75 percent higher than that of Tier 5 (a difference of 3.6 percent).
5. Tier 1 home prices have now been the fastest appreciating quintile nationally for 67 consecutive months. The same trend holds true in 45 of 50 states and 90 of the nation’s largest 100 metro areas.
6. Larger overall increases in value among lower-priced homes is not just a recent trend, though; the same dynamic is observed when looking back over the past 15 years.

Bingo!

Black Knight is six for six on that analysis.

It gets worse.

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