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Reviewing the Charts...

Some of the highlights that stood out to me when reviewing the latest Housing Book by the Urban Institute included:

FICO scores for bank and nonbank originations have fallen since April 2021 in both GSE and Ginnie Mae markets, with the nonbank drop being more pronounced (Page 17).

Annual house price appreciation exceeded 17 percent in May 2021, well above the 12-13 percent peak during the housing bubble (Page 22).

Credit has been tight for all borrowers with less-than-stellar credit scores—especially in MSAs with high housing prices. For example, the mean origination FICO for borrowers in San Francisco-Redwood City-South San Francisco, CA is approximately 781 in May 2021. Across all MSAs, lower average FICO scores tend to be correlated with high average LTVs, as these MSAs rely heavily on FHA/VA financing.

Rising incomes can help to offset faster house price appreciation and make it easier to afford a home. Over the first half of 2021, as the economy has shown signs of improvement and the unemployment rate has come down, average hourly earnings have broadly increased. However, average hourly earnings growth over the past three months has been eclipsed by core inflation. Although private-sector workers are experiencing broad growth in take-home pay, the cost of living is rising even faster reducing purchasing power.

This decline in real earnings has spread across industries. In February, monthly core inflation exceeded average hourly earnings growth in only one industry, Trade, Transportation and Utilities. But by June, real earnings had declined on a monthly basis in 9 of the 10 industries. The Leisure and Hospitality industry was the only sector where monthly average hourly earnings growth, 1.0 percent, eclipsed inflation, 0.9 percent.

At the same time, higher expectations of inflation by financial markets has modestly boosted mortgage rates. Since December, the 10-year Treasury rate has increased from .94 to 1.25 percent; this change largely reflects the rise in the spread between the nominal 10-Year Treasury rate and the real 10-Year Treasury Inflation Protected Security rate. Meanwhile, mortgage rates have increased 11 basis points to 2.78 percent over the same period.

The data suggest that faster inflation has likely worsened both the ability to save for a home and to meet monthly mortgage payments. While the housing costs of current homeowners are largely insulated from the impact of rising inflation, renters will have a harder time purchasing their first home. The only real solution to this is to reduce the housing supply shortage; this should bring down the rate of housing price appreciation Using infrastructure spending to accomplish this can help ensure that these affordability challenges do not become further entrenched in the housing market.

Attaching the full report and book below for your viewing pleasure:

Download PDF • 865KB

Ps: come discover with us next month at the MBA in San Diego. Details here:

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