Weekly Economic Update
Economic News:
How Student Loan Payments Might Affect Housing Demand
Pulsenomics poll: many economists believe the resumption of student loan payments could significantly hit homeownership rate.
The U.S. housing market has been over the past year walloped by high mortgage rates and a worsening inventory shortage. It now faces another obstacle: student loan repayments. Real estate experts are bracing for a significant blow to the market when the pandemic-era freeze on federal student loan payments comes as October progresses. A recent poll conducted by Pulsenomics found that most economists said homeownership rates will be affected for at least a year by the resumption of student loan payments — and many predicted the impact could be longer than that. For more than three years, federal student loan borrowers have not had to make monthly payments. However, the pandemic-era pause is officially coming to an end, setting up a potential financial shock for millions of Americans. Payments officially came due on Oct. 1, although interest started accruing at the beginning of September. More than 75% of the survey respondents said that the payments will have a negative effect on homeownership that lasts for a year or more. About 40% predicted an even longer impact of at least three years. On top of that, many of the economists believe the resumption of payments could significantly hit the U.S. homeownership rate, and nearly one-quarter expect it would cause an uptick in the delinquency rate. About 44 million borrowers in the U.S. were affected by the payment pause, which initially began in March 2020 at the onset of the COVID-19 pandemic. The Biden administration extended the pause for the eighth time last November and will not do so again as part of the bipartisan debt ceiling deal approved by Congress. The payments can be substantial. The average monthly bill hovers between $200 and $299 per person, although it is even higher for some borrowers, according to the most recent Federal Reserve data. Collectively, borrowers are to resume paying about $10 billion a month, according to an analysis from JPMorgan. The potential hit comes at an already precarious time for the housing market, thanks to the astronomic rise in mortgage rates over the past year. In fact, housing affordability is worse today than during the peak of the 2008 housing bubble. (Source: Fox News)
Editor’s Note – Some effects will be lessened because some payments will be affected by Income Driven Repayment Programs (IDRP)—though these borrowers are not likely to be prospective homeowners due to their lower income.
CFPB Issues Annual Mortgage Stats & Analysis
Key findings from CFPB annual report on residential mortgage lending activity and trends.
The CFPB released its annual report on residential mortgage lending activity and trends in 2022. The report finds jumps in closing costs and denials for insufficient income, as well as a growing proportion of cash-out refinances. Key findings from the year’s analysis include:
Borrowers paid much more in costs and fees: When taking out a mortgage, borrowers often pay certain costs and fees. These costs rose 22% from 2021 to $5,954.
Cash-out refinances comprised the majority of refinance originations: In 2021, the number of refinances was 8.3 million. Today’s report shows that the number dropped to 2.2 million in 2022, a 73.2% reduction.
Home-equity lines of credit rose: Though they did not comprise the majority of refinances, home-equity lines of credit were the only form of refinancing to see a rise from 2021.
Average monthly mortgage payments increased more than 46%: Driven by the rise in mortgage interest rates, the average monthly payment for borrowers taking out a conventional conforming 30-year fixed-rate mortgage (excluding taxes and insurance) rose from $1,400 in December 2021 to $2,045 in December 2022 – a 46.1% increase.
Overall, Hispanic and Black borrowers experienced worse outcomes: Black and Hispanic borrowers were denied loans at higher rates, received smaller loans, were charged higher interest rates, and paid more in upfront fees than white and Asian borrowers.
Lenders increasingly denied applicants for insufficient income: Lenders denied loan applications due to insufficient income at higher rates than at any point since that data was first collected and reported in 2018. (Source: CFPB)
Real Estate News:
Home Prices Still Rising
Year-over-year home price growth has been reaccelerating for the last few months.
August saw an unusually hefty bump in home prices, marking the fourth straight month with a new record peak, according to the latest ICE Mortgage Monitor Report from Black Knight. On a seasonally adjusted basis, home prices rose 0.68% month over month in August — a gain that Black Knight described as “exceptionally strong” for the month. Likewise, the non-seasonally adjusted monthly gain in August was 0.24%, up more than 60% from the August average for the last 25 years. National home prices, seasonally adjusted, are now 2.5% above their 2022 high-water mark. Two-thirds of major markets have hit their previous highs, and nearly half of major markets saw August increases of at least 0.75%.
More gains are projected on the way, according to Andy Walden, vice president of enterprise research strategy at Intercontinental Exchange (which formally acquired Black Knight recently). “After essentially flattening earlier this year, year-over-year home price growth has been reaccelerating for the last few months. … August marked the second consecutive month in which annual [home price appreciation] trended higher in every one of the 50 largest U.S. markets, mirroring the sharp reacceleration we’re seeing at the national level,” Walden reported.“ Already baked-in price gains mean further acceleration may be on the horizon. If adjusted home prices were to freeze where they are now, it would result in annual [home price appreciation] rising above 5% by year’s end, given the strong price increases seen earlier this year.” (Source: Scotsman Guide)