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Black Knight: Interest Rate Increases Cut Refinanceable Population by More than Half
Black Knight, Jacksonville, Fla., said recent 30-year fixed-rate mortgage loan interest rate increases has cut by more than half the number of American homeowners who could benefit from refinancing.
The company’s monthly Mortgage Monitor report said after flattening through most of the summer, the 30-year fixed interest rate has climbed 0.35 percent over the past two months and is now up 0.85 percent year-to-date (the Mortgage Bankers Association last week said the 30-year fixed interest rate was 5.11 percent, the highest rate since 2011). As a result, Black Knight said, just 1.86 million mortgage holders still have an interest rate incentive to refinance, a 56 percent decrease from the start of the year.
“An estimated 6.5 million homeowners have now missed their opportunity to refinance their mortgages due to rising rates,” said Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “On average, these homeowners had a 22-month window to refinance. All told, that amounts to an aggregate of $1.5 billion in lost savings every month for these borrowers. This year alone, 2.2 million borrowers had the opportunity to see a 0.75 percent reduction on their first mortgage rates but did not take advantage of the reduced rates before increases to the 30-year fixed rate removed their incentive.”
Graboske said the rise in interest rates continues to impact home affordability as well, noting the monthly principal and interest payment needed to purchase the average-priced home has seen a $190 per month increase since the beginning of 2018, an 18 percent jump. “It now takes 23.6 percent of the median income to make monthly payments on the average-priced home, making housing the least affordable it’s been in nearly a decade,” he said. “While still better than the 1995-2003 average of 25.1 percent, we’re close to a tipping point.”
Black Knight said at the start of 2018, just two states–California and Hawaii–were less affordable than their long-term norms. As of today, 10 states have passed those benchmarks and another six are within 1.0 percent of long-term affordability levels. “Even if home prices were to lock in place where they are today and not rise another dollar, it would take less than a half a percentage point rise in interest rates to make homes less affordable at the national level than long-term norms,” Graboske said.
The report did note home price appreciation continues to slow. Prices were up just 0.05 percent in August, roughly one-third of the 25-year average for the month, and early indicators point to a slight decline in September (for more on home prices, see CoreLogic’s report in the story below).
“That would be the first pullback in home prices in 21 months and only the second since 2015,” Graboske said. “As rates were relatively flat from June through August, this represents a continued reaction to the tightening affordability that took place early in 2018, and not the most recent jump in rates. We’ll be watching the data closely to see whether this second wave of interest rate rises enhances the slowdown we’re currently seeing in home price growth across the country.”
The report also noted the national inventory of loans in active foreclosure has fallen to pre-recession averages for the first time since the financial crisis. Black Knight said foreclosure inventory is actually 40,800 below pre-recession “norms.” At the current rate of reduction (a six-month average annual decline of 27 percent) active foreclosure inventory would hit a record low in September 2019, with fewer than 200,000 cases nationwide. (NOTE: MBA will release its 3rd Quarter National Delinquency Survey this Thursday, Nov. 8.)
Other report data:
Total U.S. loan delinquency rate: 3.97 percent in September, up by 13.22 from August;
Total U.S. foreclosure pre-sale inventory rate: 0.52 percent in September, a 4.45 percent decline from August.
States with highest percentage of non-current loans: Mississippi, Louisiana, Alabama, West Virginia, Arkansas.
States with lowest percentage of non-current loans: Colorado, Oregon, Washington, Idaho, North Dakota.
States with highest percentage of seriously delinquent loans: Mississippi, Louisiana, Alabama, Arkansas, Rhode Island.