Two months ago, with interest rates spiking higher on fears about Trump's fiscal stimulus, we showed a troubling chart in the October Black Knight Mortgage Monitor report. According to the housing consultancy, as a result of the effect jump in mortgage rates, the population of borrowers who could both likely qualify for and have interest rate incentive to refinance had been cut in half in just one month: "Mortgage rates have jumped 49 BPS in the 3 weeks following the election, cutting the population of refinanceable borrowers from 8.3 million immediately prior to the election to a total of just 4 million, matching a 24-month low set back in July 2015."
Fast forward to today, when Black Knight released its latest, December, Mortgage Monitor, which reveals another concerning observation, namely that with the recent rise in interest rates, housing is now the least affordable it’s been since 2010
According to the report, at the prevailing 30-year conforming mortgage rate (4.19% as of January 26th), it now requires 22.2% of the median income to make the monthly principal and interest (P&I) payment on the median priced home. Prior to this, the highest post-bubble ratio was 21.4% in 2013, before home prices began to decelerate and interest rates to pull back down.
In total, there was a 10 percent increase in the monthly P&I payment required to purchase the median home in Q4 2016 alone.
Worse, the monthly P&I payment on the median home (using a 30-year fixed loan with 20 percent down) was $1,045 in December, the first time it had crossed the $1000 barrier since 2008.
Which is a double whammy of bad news not only for home buyers, most of whom will be increasingly strapped for cash for other, discretionary purchases, but also for the banks, whose refi pipeline - a steady source of income and easy profit - is set to bet cut in half, the first trace of which we observed in the recent Wells Fargo results.
It is also bad news for the overall economy, which is desperate for the long overdue housing-led recovery which never managed to materialize during the Obama administration.