ICE (Black Knight) Mortgage Monitor: "It’s fair to expect prices to weaken later in 2023"

Press Release: ICE Mortgage Monitor: Affordability and Demand Continue to Suffer As Rates Hit 23-Year High; Lendable Equity Nearing Record Levels, Yet Borrower Retention Worst in 17 Years

Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of data, technology, and market infrastructure, released its November 2023 ICE Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records data sets. Interest rates continue to put significant pressure on affordability, which in turn is affecting homebuyer and borrower demand. As ICE Vice President of Enterprise Research Andy Walden explains, October was a particularly challenging month for prospective homebuyers from an interest rate perspective.

“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,” said Walden. “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.

“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.”

To that end, consumer demand is already showing further signs of stress. Purchase-mortgage applications ran 47% below pre-pandemic levels the week of Oct. 26 – the weakest they’ve been since rates began to rise last year. Though purchase lending should remain lenders’ primary focus given its driven more than 85% of all volume in recent months, Walden noted that recent refinance activity has been primarily equity-driven cash-out transactions.

“The rate/term refinance market is essentially non-existent today,” Walden said. “In fact, the refinance market in general is but a shadow of what it once was.
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House Prices Increased in September

Note: The ICE (formerly Black Knight) House Price Index (HPI) is a repeat sales index. ICE reports the median price change of the repeat sales. Here is a graph of the ICE HPI. The index is up 4.3% year-over-year.

• On one hand, prices rose 0.39% to yet another all-time high on a seasonally adjusted basis, further accelerating the annual home price growth rate to +4.3%, up from a revised +3.7% in August, a big difference from May, when the annual growth rate was almost flat (+0.25%)

• On the other hand, September’s seasonally adjusted rise was the weakest since January and a noticeable downshift from August

• With 30-year rates threatening 8%, affordability at a 38-year low, and purchase applications waning, it’s fair to expect prices to weaken as we move into late 2023

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Very Few Homeowners with Negative and Limited Equity

Some interesting data on negative equity and limited equity.

• As of September, 383K (0.7% of) mortgage holders were underwater on their homes – less than half the share prior to the pandemic and in the early 2000s before the Global Financial Crisis

• Likewise, the number of borrowers in limited-equity positions remains historically low, with 1.9M (4.2% of) mortgage holders having less than 10% equity in their homes

• Austin – where home prices remain more than 14% off 2022 peaks – is in the worst position of all markets, with 2.1% of mortgage holders underwater, followed by Las Vegas (1.7%) and Phoenix (1.6%)

• San Jose – despite its home-price struggles last year – and Los Angeles have the lowest negative equity rates at 0.1%

• Overall, the weighted-average combined loan-to-value ratio for all mortgaged homes in the U.S. is 45%, among the strongest we’ve seen, dating back more than 20 years, outside of Feb.-Aug. 2022 at the peak of home prices

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Mortgage Delinquencies Increased in September

Here is a graph on delinquencies from ICE. Overall delinquencies increased in September but are just above the record low in March.

• The national delinquency rate rose 12 basis points (bps) to 3.29% in September and is up 13 bps year-over-year – the second and largest annual rise in more than two years

• Despite the rise, the national delinquency rate is still 71 bps below pre-pandemic levels and 126 bps below the same-month average from 2000-2005, before the Great Financial Crisis

• While mortgage delinquencies remain near record lows, year-over-year increases in recent months suggest delinquencies may have reached their cycle floor and may begin to trend higher on a seasonally adjusted basis in coming months

There is much more in the mortgage monitor.