July 2019 Mortgage Monitor

JACKSONVILLE, Fla. – August 5, 2019 – Today, the Data & Analytics division of ICE released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. After 15 months of declining year-over-year home price growth, the company revisited the home affordability landscape. As Data & Analytics President Ben Graboske explained, as a result of falling interest rates and slowing home price appreciation, affordability is the best it’s been in 18 months.

“For much of the past year and a half, affordability pressures have put a damper on home price appreciation,” said Graboske. “Indeed, the rate of annual home price growth has declined for 15 consecutive months. More recently, declining 30-year fixed interest rates have helped to ease some of those pressures, improving the affordability outlook considerably. In November 2018 – when rising interest rates hit a seven-year high and home price growth fell by half a percent in a single month – it took 23.3% of the median household income to make the principal and interest payments when purchasing the average-priced home. As 30-year rates fell to 3.75%, that share fell to 21.3%, the lowest it’s been in 18 months.

“This has changed the affordability landscape significantly. Whereas nine states were less affordable than their long-term norms back in November – a key driver behind the subsequent deceleration in home prices – only California and Hawaii remained so as of July. And despite the average home price rising by more than $12K since November, today’s lower fixed interest rates have worked out to a $108 lower monthly payment when purchasing the average-priced home with 20% down. Lower rates have also increased the buying power for prospective homebuyers looking to purchase the average-priced home by the equivalent of 15%, meaning that they could effectively buy $45,000 ‘more house’ while still keeping their payments the same as they would have been last fall. As affordability pressures have eased, it also appears to be putting the brakes on the home price deceleration we’ve been tracking since February 2018. After 15 consecutive monthly declines, the national home price growth rate for June stayed level from May at 3.78%.”

This month’s analysis found that improved affordability has begun to curb the strong slowing in home prices in West Coast housing markets. In fact, California went from having one of the top five home price growth rates of any state (8.6%) one year ago to second-to-last as of June 2019, with home price growth slowing to just 1.3% year-over-year. While California is one of only two states that remain less affordable than their long-term norms, affordability in the state has improved significantly in recent months. It now requires 34% of the median income to purchase the average home in California, down from 38% in November.

Home price slowing has begun to level off in California as a whole and several of the West Coast’s largest markets. While prices in Los Angeles, San Francisco, San Diego and Seattle, Wash. have all risen by 1.1% or less over the past 12 months, the rates at which they’re slowing have begun to taper. Even in San Jose, where home prices are down by more than 6% from June 2018, the rate of decline has begun to flatten. These are all good signs, given these markets’ sharp reaction to rising rates and tightening affordability in late 2018.