Housing Finance at a Glance: Monthly Chartbooks
The January 2021 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated figures describing the cash-out share of all refinances, mortgage credit availability across lending channels, debt-to-income ratios for purchase originations, and months of supply.
Homebuying Affordability May Be a Key 2021 Theme
Home prices have continued to climb throughout the current recession, led by faster-paced growth among the lowest-priced homes, but a slowdown in their rate of growth has brought the pace of growth in both the highest- and lowest- priced homes to near convergence. For renters, the slowdown in low-tier home price growth may have improved homebuying affordability, but rental price growth has also slowed, potentially neutralizing the choice between renting and owning. Even though rental price growth has slowed, the decline in mortgage rates makes homeownership relatively more attractive than it was at this time last year.
BlackKnight provides home price data by five tiers ranging from the lowest priced to the highest priced homes. The figure above compares the year-over-year growth rate between the lowest-tier and highest-tier of home prices. During the current recession, the gap in the home price appreciation in the two tiers narrowed from 2.0 percentage points in January to 0.5 percentage point by November. Over this period, low-tier growth slowed from 6.8 to 4.7 percent and high-tier growth slowed from 4.8 to 4.2 percent.
The convergence between low- and high-tier home price growth largely reflects a slowdown in price appreciation among lowest-tier homes, a trend broadly in place since the beginning of 2018, which is a welcome sign for homebuying affordability, particularly for first-time homebuyers. However, the Consumer Price Index data indicate that rent growth for primary residences slowed over 2020 as well, from 3.8 percent in January to 2.4 percent by November.
The slowdown in low-tier home price growth combined with a 90-basis point decline in mortgage rates, from an average of 3.6 percent to 2.7 percent between January and December 2020, likely improved the affordability of low-tier homes relative to renting for many.
The following example illustrates the impact of lower rates. Assume a first-time homebuyer is choosing between purchasing a $210,000 home with a 3.5 percent downpayment using a Federal Housing Administration (FHA) mortgage or renting a home for $1,775. The mortgage payment, assuming the upfront mortgage insurance premium was folded into the mortgage amount, would be $1,109 per month. Allowing for taxes, insurance and maintenance (3.75 percent of home price) their total monthly housing expenses would be $1,765, $10 cheaper than renting. By contrast, a year earlier, with lower home prices and higher interest rates, the cost of owning a home was $1,808, versus renting at $1,733, a $74 gap in favor of renting. These dynamics likely contributed to the recovery in home sales.
Will this continue to be the case? It’s hard to tell. Many housing analysts predict slower home price growth in 2021, but mortgage rates are expected to rise in response to prospects for fiscal policy and the continued vaccine rollout. Higher rates could offset any improvement in housing affordability from slower home price growth. Amid these dynamics, maintaining homebuying access and affordability by expanding down payment assistance programs, reassessing how we qualify borrowers for mortgages, including a full accounting for income and using alternative credit, and encouraging more high-density building will help more renters reach homeownership.
January 28th Chartbook Call featuring Ed Golding; Chartbook Slides
October 29th chartbook call featuring speaker Ed Golding.
July 29 Chartbook call featuring Amy Crews Cutts; Slides from Amy Crews Cutts and Chartbook Slides
January 29th Chartbook call featuring Bob Broeksmit and Mike Fratantoni.
July 2019 (watch the July 29 chartbook call with guest Richard Green)
April 2019 (watch the April 29 chartbook call with guest Dave Stevens)
January 2019 (watch the January 30 chartbook call with guest Dave Stevens)
- Structural barriers to the benefits of homeownership for homeowners of color; and
- The viability of small-dollar mortgages.
We provided valuable evidence on emerging issues, including:
- How to equitably build Black wealth through homeownership;
- Maintaining forbearance while fixing its costs and expanding its reach to unprotected homeowners;
- The implications of proposed GSE reforms, including the FHFA’s proposed capital rule and the CFPB’s proposed QM rule; and
- The OCC’s new regulations to the Community Reinvestment Act.
We are looking ahead to 2021, when we will continue to analyze ongoing issues critical to the health of the housing market, and respond quickly to emerging trends. Among other things, expect to see work from us on these topics in 2021:
- The continued impact of the pandemic on the housing market;
- Reducing the racial wealth gap through affordable housing and homeownership;
- Barriers to homeownership in particular communities; and
- The ongoing housing finance reform debate.
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