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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 58 June 2024 J O U R N A L due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings. A decrease in the PAPI—indicative of improving borrower affordability conditions—occurs when loan application amounts decrease, mortgage rates decrease, or earnings increase. The national PAPI increased 1.5% to 176.8 in April from 174.2 in March. This occurred while median earnings increased by a modest 4.6% year over year, payments topped that by increasing 6.8%. The strong earnings growth means that the PAPI is up 2.1% on an annual basis. The PAPI was benchmarked to 100 based on data from March 2012. For borrowers applying for low- er-payment mortgages (the 25th percen- tile), the national mortgage payment increased to $1,537 in April from $1,488 in March. The Builders' Purchase Application Payment Index showed that the median mortgage payment for purchase mort- gages from MBA's Builder Application Survey increased to $2,604 in April from $2,556 in March. WHO'S COMPETING FOR NEW MORTGAGES? L ast year, low-income Americans received almost 1 in every 5—an estimated 20.6%—new mortgag- es, putting their share of the homebuying pie back to where it was in 2018. This is according to new data from Redfin's Home Mortgage Disclosure Act (HMDA). Low-income households gained headway at the start of the pandemic, ac- counting for 23.2% of all new mortgages in 2020, but that growth has since been reversed as high home prices and rising mortgage rates have weakened overall affordability. The modest bit of progress that Americans on very low incomes achieved on taking out mortgages at the start of the pandemic has also been erased. Just under 6% of new mortgages issued last year went to very low-income Americans, a decrease from 7.7% in 2020. Very-low- income Americans currently account for a lower percentage of mortgage borrow- ers than they did in 2018 (7.1%). "There was a sweet spot in 2020 when mortgage rates were ultra-low and home prices had yet to skyrocket, allowing some lower-income Americans to break into the housing market," Redfin Senior Economist Elijah de la Campa said. "But somewhat ironically, the continued strength of the economy has made it harder to afford a home and widened the real-estate wealth gap between rich and poor Americans. The Fed's interest-rate hikes, meant to help cool inflation and slow a hot economy, have pushed mort- gage rates to near their highest level in more than two decades. That's on top of home prices, which skyrocketed during the pandemic buying boom and have stayed high due to a shortage of homes for sale." Per the report, higher-income home- buyers are taking up the share of new mortgages that low-income homebuyers have lost in recent years. While low-in- come borrowers gained and then lost market share throughout the pandemic, high-income borrowers have done the opposite, as they are better prepared to withstand the storm of high prices and rates. In 2023, high-income buyers received nearly half (44.8%) of all new mortgages countrywide, putting their share of the pie back to about the same level as in 2018. Their share fell to a low of 41.2% in 2020. Because of sky-high home prices and mortgage rates, lower-income people are finding it increasingly difficult to own a home. In 2023, housing affordability fell to a record low. Affordability hasn't improved during the first few months of 2024: » Home prices: Today's median-home sale price is about $420,000, up 5% year over year. That's up nearly 40% since the start of the pandemic in March 2020 and up nearly 50% since March 2019. » Mortgage rates: Today's average 30- year mortgage rate is about 7.2%, up from 6.43% a year ago and more than double the record low of 2.65% in 2021. It's also higher than the 4% to 5% levels in 2018 and 2019. » Monthly payments: The typical homebuyer's monthly payment is now a record-high $2,886, up 13% year over year. That's up from just over $1,500 in both March 2020 and March 2019. » Down payments: The typical down payment for someone putting down 20% is $84,000, up from $80,200 a year ago, $60,800 in March 2020, and $56,800 in March 2019. While the U.S. economy is relative- ly strong, unemployment is low, and income is rising—but home prices are rising much faster. Hourly wages are up around 5% year over year, while monthly housing costs are up 15%. Rising housing costs have a disproportionate impact on low-income households, which are less likely to have savings for down payments and record-high monthly payments. Because of the growing popularity of all-cash purchases in today's market, housing wealth is considerably more concentrated in the hands of wealthy Americans than the mortgage data pre- sented above indicates. As of February, more than one-third of all house sales in the United States were completed in cash, nearing a record high, and the ratio has gradually increased since 2020. Housing affordability may improve if the Fed decreases interest rates later this year or early next year, lowering elevated mortgage rates. Alternatively, if rates remain high for longer than projected, the impact on purchasers' budgets may cause property values to fall. While high-income Americans accounted for the majority of home pur- chases last year, residents of all income levels bought considerably less homes in 2023 than the previous year. In 2023, the number of residences purchased in the United States by high-income earners declined 19% year over year, while it fell 18% for moderate earners, 22% for low-income earners, and 31% for extremely low-income earners. Overall, housing costs increased as home prices and mortgage rates rose, and inventory declined.