CALCULATEDRISK
By Bill McBride
“If you do not know where you come from, then you don’t know where you are, and if you don’t know where you are, then you don’t know where you’re going. And if you don’t know where you’re going, you’re probably going wrong.” Terry Pratchett
These “Current State” summaries show us where we came from, where we are, and hopefully give us clues as to where we are going!
Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-February 2024 I reviewed home inventory, housing starts and sales.
House Prices
The Case-Shiller National Index increased 5.1% year-over-year in November and will likely be even more positive YoY in December (based on other data).
The MoM increase in the seasonally adjusted Case-Shiller National Index was at 0.24%. This was the ninth consecutive MoM increase, but the smallest increase since February 2023.
Other measures of house prices suggest prices will be up further YoY in the December Case-Shiller index. The NAR reported median prices were up 4.4% YoY in December, up from 4.0% YoY in November. ICE (formerly Black Knight) reported prices were up 5.6% YoY in December, up from 5.1% YoY in November to new all-time highs, and Freddie Mac reported house prices were up 6.6% YoY in December, up from 6.1% YoY in November – and also to new all-time highs.
Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.
The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, the YoY change in the Case-Shiller index will increase further in the report for December.
In real terms, the Case-Shiller National index is down 2.3% from the peak, seasonally adjusted. Historically it takes a number of years for real prices to return to the previous peak.
30-Year Mortgage Rates are Back to 7%
The following graph from MortgageNewsDaily.com shows mortgage rates since January 1, 2010. 30-year mortgage rates were at 7.13% on February 13th, down from just over 8% on October 19th – the highest 30-year fixed rate in 23 years – but up from 6.6% in late December.
A year ago, 30-year mortgage rates were at 6.54%, and two years ago rates were at 4.10%, and three years ago rates were at 2.86%.
A year ago, the payment on a $500,000 house, with a 20% down payment and 6.54% 30-year mortgage rates, would be around $2,539 for principal and interest. The monthly payment for the same house, with house prices up 5.1% YoY and mortgage rates at 7.13%, would be $2,735 – an increase of 11%.
However, if we compare to three years ago, there is huge difference in monthly payments. In February 2021, the payment on a $500,000 house, with a 20% down payment and 2.86% 30-year mortgage rates, would be around $1,656 for principal and interest. The monthly payment for the same house, with house prices up 34.5% over three years and mortgage rates at 7.13%, would be $3,627 – an increase of 119%! More than double!
Here is a graph showing the MBA mortgage purchase index released this morning. Purchase application activity is up from the lows in late October and early November, but still at the lowest levels during the housing bust.
And the next graph shows the refinance index since 1990. Refinance activity has increased recently, but you have to squint to see the increase!
Asking Rents Mostly Unchanged Year-over-year
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through December 2023, except CoreLogic is through November and Apartment List is through January 2024.
Asking rents are mostly unchanged YoY, and with new supply coming on the market, we will likely see further softness in asking rents.
However, the official measures are still catching up to the private data. Yesterday, the BLS noted in the CPI report: “The index for shelter continued to rise in January, increasing 0.6 percent and contributing over two thirds of the monthly all items increase.”
This is important for housing and also for monetary policy.
Low Levels of Delinquencies, Foreclosures and Real Estate Owned
In December, I wrote Q3 Update: Delinquencies, Foreclosures and REO. I’ll have another update in March.
In that article I noted that with substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties during this cycle.
Here is a graph of the current loan-to-value (LTV) of all outstanding mortgage loans from the FHFA’s National Mortgage Database through Q3 2023 showing most borrowers have substantial equity.
Almost 69% of borrowers have current LTVs under 60% (and this doesn’t include all the homes without a mortgage). And 91.3% of borrowers have LTVs under 80%. This is very different than during the housing bubble and bust, when a large percentage of borrowers had little or no equity.
Here is some data from the recently released Mortgage Bankers Association’s (MBA) National Delinquency Survey.
The mortgage delinquency rate increased in Q4 to a seasonally adjusted rate of 3.88 percent of all loans outstanding, up from the record low in Q2 2023. This is still historically very low.
Most borrowers have solid credit and significant equity. Here is a graph from the NY Fed Quarterly Report on Household Debt and Credit showing Mortgage Originations by Credit Score.
Unlike during the housing bubble, most borrowers have solid credit.