All Things in Moderation

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down.

Home prices rose 20% YOY in February, according to data from CoreLogic. “New listings have not kept up with the large number of families looking to buy, leading to homes selling quickly and often above list price. This imbalance between an insufficient number of owners looking to sell relative to buyers searching for a home has led to the record appreciation of the past 12 months. Higher prices and mortgage rates erode buyer affordability and should dampen demand in coming months, leading to the moderation in price growth in our forecast.” In terms of geography, the West and the Southeast saw the biggest growth, while prices lagged in the Midwest and the Northeast.

Affordability is the lowest in 15 years, according to Black Knight. “This combination of accelerating growth and sharply rising interest rates has resulted in the tightest affordability in 15 years. In fact, outside of the skewed 2004-2007 market, the 29.1% of median income now required to make the P&I payment on the average-priced home bought with 20% down is the highest share in 25 years. Entering the year, a prospective homebuyer who could budget a $1,700 monthly P&I payment – roughly the amount required to buy the average home today, excluding taxes and insurance – could afford a $497,000 house. With Freddie Mac reporting the average 30-year rate at 4.42% on March 24, that same borrower can now afford less than $425,000. The average P&I payment has increased 24%, or approximately $329 per month, while at the same time, the average homebuyer’s buying power has dropped by 15%. In the recent past, a payment-to-income ratio above 21% has worked to cool the housing market and regulate prices, but today’s record-low inventory continues to fuel significant growth even in the face of the tightest affordability in 15 years.”

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