Mortgage Credit Drops to Lowest Level Since September

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CoreLogic has analyzed the home price boom that preceded The Great Recession compared to the home price acceleration of the current market concluding that lower payment ratios significantly limit the risk of home price declines. CoreLogic reported This Week in Real Estate that in 2006 a household spent 25% of their income on a mortgage payment, but in 2021, that ratio dropped to 17%. According to the CoreLogic Market Risk Indicators, 13% of metro areas were at risk of home price decrease in 2006, but that risk fell to near zero in 2021. Below are a few newsworthy events from the second week of July that influence our business: 

Comparing Two Home Price Booms, Fifteen Years Apart. April 2021 marked the 15-year anniversary of the national home price bubble. In April 2006, home prices peaked just before heading to an unprecedented decline. As home prices soar in 2021, many comparisons are being made between the current housing environment and the one in 2006. However, despite recent double-digit home price appreciation, the mortgage payment to purchase a home is substantially more affordable than it was 15 years ago. Home prices increased 13% in April 2021, which was the fastest year-over-year increase since February 2006. During the earlier housing market boom, home prices increased continuously for 14 years before reaching their peak in April 2006. The current housing market boom started in March 2011 and, so far, has lasted 10 years. One major difference between April 2006 and April 2021 is the level of mortgage interest rates. In 2006 the 30-year fixed-rate mortgage rate was 6.5%, more than double the level in April 2021. Lower mortgage rates increase affordability by reducing the payment to income ratio – in 2006, a household spent 25% of their income on a mortgage payment, but in 2021, that ratio dropped to 17%. Put in other terms, the typical mortgage payment, which is the monthly payment a borrower would pay for a median-priced home, was $1,275 in April 2006, but only $940 in April 2021. That’s a decrease of 26%. Lower payment ratios significantly limit the risk of home price declines over the next 12 months. According to the CoreLogic Market Risk Indicators, 13% of metro areas were at risk for home price decrease in 2006, but that risk fell to near zero in 2021.

Mortgage Credit Drops to Lowest Level Since September. Mortgage credit availability dipped 8.5% in June to 118.8 – indicating that lending standards are tightening, per the Mortgage Bankers Association’s Mortgage Credit Availability Index. It’s the lowest MCAI level – which uses 100 as a benchmark – since September of 2020, and ends more than six months of increasing credit supply, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting. After weeks of mortgage application decreases, the MBA reported yesterday that total applications had increased a whopping 16% in one week, driven by a dip in mortgage rates and an incentive for homeowners to lock in a refi.

Mortgage Refinance Fee Dropped By Regulator, Lowering Costs For Borrowers. Fannie Mae and Freddie Mac are dropping a fee on mortgage refinances that was instituted during the pandemic, lowering costs for borrowers, the Federal Housing Finance Agency said Friday. Fannie and Freddie were charging lenders a 50 basis-point fee for all loans that were delivered to the two mortgage giants. The fee, designed to cover losses projected as a result of the pandemic, was being passed on to borrowers. “Today’s action furthers FHFA’s priority of supporting affordable housing while simultaneously protecting the safety and soundness of the Enterprises.” The mortgage industry applauded the move. “Santa Claus has come early for homeowners looking to refinance their mortgages,” said Greg McBride, chief financial analyst for Bankrate.com.

Did you know every home listed for sale with Berkshire Hathaway HomeServices Northwest Real Estate is eligible to receive no-obligation home warranty coverage the first six months the home is listed with our company?

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