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March 2022 Mortgage Monitor

As Home Affordability Nears All-Time Low Amid Spiking Interest Rates and Still-Rising Prices, Borrower Behavior and Preferred Products Changing

  • According to the ICE HPI, home prices rose 3% in March alone, marking the fifth time in the pandemic era that homes increased by more than 2% in a single month
  • Annual home price gains slowed very slightly in March, seeing 19.9% annual appreciation, down from an upwardly revised 20.1% in February – the first-ever month to see greater than 20% price growth
  • With 30-year mortgage rates at 5.11% as of April 21, the share of the median income required to make the principal and interest (P&I) payment on the average-priced home is now 32.5%
  • That is within 1.6 percentage points of the all-time high 34.1% payment-to-income ratio seen in July 2006
  • A rise of just 50 more basis points in rates or a 5% rise in home prices would push affordability to its worst level on record, and they are already up 200 basis points and 5.9% respectively since the start of 2022
  • A full 95 of the 100 largest U.S. markets are now less affordable than their long-term (1995-2003) benchmarks, up from six markets at the start of the pandemic
  • Thirty-seven markets – representing nearly a third of the country – are now the least affordable they’ve ever been
  • Optimal Blue rate lock data has shown increases in adjustable-rate mortgages (ARMs) as they seek to navigate an ever-more challenging housing market

JACKSONVILLE, Fla. – May 2, 2022 – Today, the Data & Analytics division of ICE released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage, real estate and public records datasets. As home prices and interest rates continue their sharp upward climb, this month’s report revisits the mounting affordability pressures resulting from these competing dynamics. According to Data & Analytics President Ben Graboske, though home price appreciation slowed in March – albeit very slightly – 30-year mortgage interest rates above 5% have pushed affordability very near its all-time worst level.

“After accelerating for the last four months, the rate of annual home price growth actually slowed a bit in March,” said Graboske. “Still, at 19.9% – down from an upwardly revised 20.1% in February – March would have otherwise set yet another record for appreciation. Year-to-date, home prices are already up nearly 6% nationwide with nearly 25% of the nation’s largest markets seeing gains of more than 7% over the last three months alone. With 30-year interest rates hitting 5.11% as of April 21, the impact these price gains have had on home affordability is significant.

“As measured by the share of median income required to make the P&I payment on the average-priced home bought with 20% down, U.S. housing was the least affordable ever back in July 2006 when it took 34.1% to make that P&I payment. At the end of February 2022, we were already at 29.1% – and both rates and prices have continued to climb since then. As of April 21, that payment-to-income ratio has now climbed all the way to 32.5%, within just 1.6 percentage points of the prior record. In ‘kitchen table’ terms, that equates to a $522 higher average monthly P&I payment – a 38% increase since January – with that payment up $790 (+72%) since the start of the pandemic. It won’t take much to push us past 2006 levels either; a 50 basis points jump in 30-year offerings or a 5% rise in home prices would push affordability to its worst level on record. And saying that, we should also keep in mind that they’ve already risen 200 basis points and 5.9% respectively this year.”

Leveraging rate lock data from Optimal Blue, a division of ICE, this month’s Mortgage Monitor shows that these market dynamics have made ARMs increasingly more attractive to borrowers. Indeed, the spread between 30-year and ARM offerings is now the widest it’s been since 2014, and within 20 basis points of an all-time high. As of mid-April, the average 5/1 ARM had a 1.3% lower initial rate than 30-year mortgages. In turn, the ARM share of purchase rate locks by volume has spiked from 2.5% in December to nearly 8% in March, the highest such share since Optimal Blue began reporting the metric in 2017.

While the ARM share is now at or near a post-Great Financial Crisis high, it still pales in comparison to the 40%+ of purchases completed via ARMs at the peak in 2005. Risk characteristics of these loans remain conservative as well: ARMs with 7-10-year introductory periods make up the vast majority of ARM originations (85% in 2021) and the average debt-to-income ratio among March ARM rate locks remained below 31%. Today’s average ARM credit score of 757 is also the highest since at least 2017, and the number of outstanding ARMs is the lowest in more than 20 years. Still, nearly 1.4 million active ARMs are in the adjustable phase and may face rate – and subsequently payment – increases in coming months driven by sharp rises in underlying ARM indexes. ICE will continue to monitor the situation in the months to come.

Finally, though the appetite for “Expanded Guideline” purchase loans – a proxy for the non-qualified mortgage (non-QM) market – was all but non-existent early in the pandemic, rate locks on such loans have since hit a multi-year high driven by widening spreads, tightened affordability and increased investor appetite. While such loans only made up approximately 3% of all purchase locks in recent months, they are worth keeping an eye on given continued market shifts.

About Mortgage Monitor

The Data & Analytics division of Black Knight manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

Black Knight’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.blackknightinc.com/data-reports/

About Black Knight

Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.

Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serving their customers. For more information on Black Knight, please visit www.blackknightinc.com.

About Mortgage Monitor

ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and ICE Valuation Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

ICE’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.icemortgagetechnology.com/resources/data-reports

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges – including the New York Stock Exchange – and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines and automates industries to connect our customers to opportunity.

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Media Contacts

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