Black Knight: Home Price Gains Muting Housing Affordability

Black Knight Financial Services, Jacksonville, Fla., said potential gains for homeowners from mortgage interest rate drops is being threatened by home price increases that have made housing less affordable.

The company’s Mortgage Monitor report said the 35 basis point drop in interest rates since the start of 2016 would have saved homebuyers $44/month on the purchase of the median priced home nationally; home price increases, however, have cut those savings to just $18/month. In some areas of the country, such as Washington, Oregon and Colorado, home prices are outpacing interest rate savings completely.

“The mortgage on a median-priced home is still more affordable than it was in December, despite rising prices, just not as much as one might expect given that rates are as low as they are,” said Black Knight Senior Vice President of Data and Analytics Ben Graboske. “This isn’t to say that interest rate reductions aren’t beneficial to buyers–they almost certainly are.”

Had rates not dropped over the past four months, Graboske said it would cost an additional $28 to buy the median-priced home today as compared to December. “By and large, borrowers are still seeing net reductions in monthly payments across the country heading into the early home buying season,” he said. “In some areas though, prices are appreciating so quickly that they may have fully offset any savings from rate declines.”

At the same time, Black Knight said, falling interest rates have increased the population of borrowers who could both qualify for and benefit from refinancing. This population has grown by 2.3 million in the past two months, to 7.5 million borrowers.

The report said 40 percent of these mortgages that qualify for refinancing were originated between 2009-2011 (the downturn of the market), suggesting a lack of awareness of sufficient equity to qualify for a refinance may be keeping borrowers on the sidelines. “Another 700,000 now have interest rate incentive to refi, whereas they did not before,” Graboske said.

Black Knight also found that more than two-thirds of the total population also met eligibility requirements in early 2015, but didn’t take advantage of refinancing at that time.

Black Knight also noted while the overall mortgage delinquency rate is now below the 2000-2005 average, serious delinquencies (90 or more days past due) and active foreclosures remain elevated, standing 45 percent and two times above historical norms, respectively. At the current rate of decline, it will take more than two years for seriously delinquent inventory to return to pre-crisis norms, with the 90-day delinquency rate normalizing by mid-2017 and the foreclosure rate by near the end of 2018.

Other key report results:
–Total U.S. loan delinquency rate: 4.08%, a month over month decline of 8.37 percent.
–Total U.S. foreclosure pre-sale inventory rate: 1.25%, a month over month decline of 3.69 percent.
–States with highest percentage of non-current loans: Mississippi, New Jersey, Louisiana, New York and Maine.
–States with lowest percentage of non-current loans: Alaska, South Dakota, Minnesota, Colorado and North Dakota.
–States with highest percentage of seriously delinquent loans: Mississippi, Louisiana, Alabama, Arkansas and Rhode Island.