Housing MarketMortgageMortgage RatesOrigination

Home prices and mortgage rates keep rising, and it might get worse still

ICE expects nearly an 8% y/y home price growth by December if this year's average 0.64% per month seasonally adjusted price increase continues

Home prices continued to accelerate in August, rising a seasonally adjusted 0.68% from July and hitting another record high for the fourth consecutive month.

Prices in nearly half of the nation’s 50 largest markets climbed by 0.75% or more. Even on a non-adjusted basis, August’s gain of 0.24% was more than 60% larger than the 25-year average for the month, according to a mortgage monitor report from Intercontinental Exchange, Inc. (ICE).

“Either way you look at it, the increase was sufficient to push annual appreciation up to a stronger-than-expected 3.8%. This marks three months of clear acceleration in the rate of growth at the national level, with annual HPA up from 2.4% in July and just 0.25% back in May,” said ICE’s Vice President of Enterprise Research Andy Walden.

While home affordability recently hit a 38-year low due to spiking rates and home prices, Walden noted that it might yet get worse.

If adjusted home prices were to freeze where they are now, it would result in annual home price appreciation rising above 5% by the end of this year given the strong price increases seen earlier in 2023. 

“On the other hand, if the 0.64% per month seasonally adjusted price increases we’ve seen on average in 2023 were to continue, we’d be looking at nearly 8% year-over-year growth by December,” Walden noted.

The high-interest rate environment continues to put downward pressure on mortgage origination activity.

Purchase loans comprised about 82% of overall mortgage lending in 2023 and ICE forecasts purchase lending to continue to dominate the market through next year. 

There is modest opportunity in the refinance market although it is defying traditional analysis, according to ICE’s mortgage monitor report.

The profile of cash-out borrowers – who made up roughly 90% of all Q2 refinances – has shifted considerably in recent quarters. 

While the average unpaid principal balance of borrowers entering a refinance has fallen from $319K in early 2020 to $183K in August 2023, it is even lower ($165K) among cash-outs specifically. 

Alongside rising interest rates, the average equity withdrawal among cash-out refinances has also risen by nearly 90% from its low in 2020.

Today’s candidates are far more focused on tapping equity, and cash-outs may make sense for borrowers with lower balances looking to withdraw large amounts of equity at lower interest rates than what is available via a HELOC, ICE noted.

“With nine of 10 August 2023 refinances involving the borrower raising their interest rate – with an average rate increase of 2.34 percentage points – simple ‘in the money’ analytics are missing this market almost entirely. Granular insight into the before-and-after-refinance picture is key to understanding who is transacting in today’s rate environment – and more importantly, why, ” Walden said. 

The average cash-out credit score of 715 is down more than 40 points in less than three years and is among the lowest in the post-Great Financial Crisis era. 

Higher credit borrowers who can qualify in today’s market are more likely opting for HELOCs as a way of tapping equity, leaving a lower credit score residual among cash-out refis.

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please