While the topic of plunging mortgage applications, both for new home purchases and refis, has been covered extensively here previously, and specifically its drop to levels last seen in 2011, the one aspect of rising rates that has gotten little prominence elsewhere (though covered here [5]), is the topic of home affordability. Or lack thereof. The following chart from Bank of America shows that while as a result of record low interest rates housing affordability until very recently was at record highs (if mostly for those with access to subsidized REO-to-Rent loans or the 60% "all cash" flippers/buyers [6]), this index has plunged in recent months, is back to 2008 levels, and has effectively trimmed its spread to the long-term historical average by half. And that's with the 10 Year still comfortably under 3%: at this pace if and when the 10 Year rises to 4% or, heaven forbid, its long-term average of 5%, only the 0.01% will be able to afford a house. The worst news: the much anticipated scramble to rush and buy a house (now that houses are less affordable) is not materializing at all.
If anything, regular households are waiting for home prices to drop once again, following the pull out of all those who have levered up on cheap money and unable to find organic buyers (i.e., no more flipping), proceed to dump pent up inventory en masse.
Needless to say, the impact from that outcome will hardly be beneficial to all those who keep on trumpeting a fake, cheap-credit driven and largely non-existent housing "recovery."
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