Motley Fool has a piece up from the weekend that caught HousingWire’s eye: “2 Simple Charts Prove That Now Is An Exceptional Time to Buy a Home.”
It caught our eye because it sounds like the kind of story we publish from time to time – our own story from just a month ago along these lines looks at the convergence of low mortgage rates and home prices with a slightly different twist. The Motley Fool writer starts strong enough:
If you're wondering whether this summer is a smart time to buy a home, then let me cut to the chase. Thanks to still-historically low mortgage rates, housing may never again be as affordable as it is right now.
At present, the interest rate on a 30-year fixed rate mortgage is 4.19%. That's the cheapest they've been all year, and they even recently dipped below half the long-run average of 8.52%.
Click below to see the chart.
Mortgage rates and home prices are two of the big drivers of home sales, after all. Motley Fool looks at these in terms of rates (ridiculously low) and home price affordability, which as measured by the National Association of Realtors, is “the degree to which a typical family can afford the monthly mortgage payments on a typical home."
Click below to see the chart.
And by that NAR measure alone, homes are more affordable – but that’s just too broad a measure. It’s an empty measure, like the 77 cents on the dollar argument, that doesn’t fairly reflect reality.
But for the sake of argument, let’s say the NAR affordability index isn’t flawed.
Rates are low. According to Freddie Mac’s latest Primary Mortgage Market Survey, although rates edged slightly higher for the week ended June 12, they are still low for the year. The 30-year, fixed rate mortgage averaged 4.20%, up from 4.14% last week and 3.98% a year ago.
And we concede the affordability index for now.
So they have low mortgage rates, and high affordability. Which demands the question...
It’s like when you hear peak oil proponents argue their position and bring up supply and demand, without ever mentioning price in the equation.
Here, the missing leg is the “price” of a mortgage – or rather, how much harder it is to get a mortgage now than it used to be.
We could mention the job insecurity, weak employment recovery, income stagnation for the middle class, student and credit card debt, large swaths of buyers still repairing their credit after the crash, and a half a dozen other factors, but standing as its own chair leg – and missing from the Motley Fool take – is the fact it’s just harder to get a mortgage.
It used to be easy for lenders to get their loans insured by the Federal Housing Administration or guaranteed by Fannie Mae or Freddie Mac, and now lenders can be on the hook financially far more than ever before, even in cases where there is no fraud or attempt to cut corners.
With the Consumer Financial Protection Bureau’s Qualified Mortgage rule, a lot of that has changed.
Income verification is much tighter and there are more restrictions on eligible income. Debt-to-income ratios are higher and more thoroughly documented and higher credit ratings are king.
It’s not a judgment call on QM, it’s just the fact of how the rule was written in the aftermath of the housing crash.
It shows in the applications this year. Black Knight Financial Services measure shows originations are at their lowest level since 2000. Wells Fargo (WFC) and JPMorgan Chase (JPM) both have seen their mortgage business plummet in the first quarter, along with just about every other bank.
Mortgage applications for new home purchases dropped by 8% in May compared to the previous month, according to the Mortgage Bankers Association Builder Application Survey, despite belief among many that there was pent-up demand after harsh winter weather was blamed for slowing sales.
(Next month they’ll blame the FIFA effect for a sluggish housing market, since now it’s only cold and snowy in the heart of the programming executive who cancelled NBC’s “Community.”)
There has been some loosening of credit, MBA argues, but it’s mostly in the jumbo loans, not the bread-and-butter middle class homes that drive housing overall.
It’s going to take more than enticing numbers to fix what’s wrong with the housing market.