Doctor’s > Rate & Economic Update for Doctor Loan Program: More Affordable Than We Think?
Keeping you updated on the market!
For the week of
March 12, 2018
More Affordable Than We Think?
The relentless march higher continues. Home prices continue to post at higher levels, as they have for the past five years. Realtor.com, Case-Shiller, and Trulia data show home prices relentlessly rising across the country month after month.
The latest CoreLogic data confirms the trend. CoreLogic data show home prices in its latest home price index rose 6% year over year in January. It’s really dog-bites-man news. Six appears to be the magic number. CoreLogic data continually show 6% year-over-year increases. The latest data offer no surprises, but it does fortify the strength of the price trend, which is unlikely to reverse this year.
The price trend invites an obvious question: Have homes become less affordable?
Given the trend in home prices, and mortgage rates in recent months, the immediate answer would be yes. The answer wouldn’t necessarily be wrong, but it wouldn’t necessarily be right, either.
A new Trulia study shows homes have actually become more affordable over the past 40 years. The study shows that the median household can afford a home 1.5 times more expensive than the median home price. Back in the days of polyester, bad haircuts, and the last decent Rolling Stones album (Some Girls), the median household could afford only 75% of the median home price.
The trend in affordability is attributable to the trend in productivity. We’re more productive than we were 40 years ago. The more productive we are, the higher salaries we can command. The rise in salaries has outpaced the rise in home prices.
But homes are no homogeneous mass. The housing market is a very heterogeneous market: homes vary by size, location, accoutrements, design, demography, and, of course, price.
When heterogeneity is considered, homes can be less affordable, and Black Knight proves the point. Their Mortgage Monitor report shows some housing tiers are becoming less affordable. Homes across tiers don’t appreciate in unison (which averages obfuscate); they appreciate at varying rates. No surprise here, Black Knight’s data show tier 1 (lowest 20%) home prices rising faster than other tiers. The lower-priced homes have been outpacing the average by nearly two percentage points annually.
Affordability is unlikely to improve in the lower tiers. That’s the bad news.
The good news is that more millennials are moving into the housing market, according to the analysts at Morgan Stanley, as reported by Barron’s. The analysts forecast annual household formation of 1.35 million over the next fives. The average was 925,000 in the fourth quarter of 2017.
At least mortgage rates have been more accommodating of late. Rates have held firm over the past week. Yes, they’ve been holding in a higher range – 4.5% to 4.625% in recent weeks – but MBA data show more borrowers are able to avail themselves of mortgage financing these days.
So, are homes more or less affordable these days? The answer is yes.
Date and Time
Consumer Price Index
Tues., March 13,
8:30 am, ET
All Goods: 0.4%
Moderately Important. Consumer-price inflation remains low, but it’s high enough to allow the Fed to follow through with its rate-rising policy.
Home Sentiment Index
Thurs., March 15,
10:00 am, ET
Moderately Important. Traffic is on the rise, which appears to corroborate evidence of increased interest among younger buyers.
Fri., March 16,
8:30 am, ET
1.3 Million (Annualized)
Important. Starts have ramped up to start 2018. Starts are expected to hold at a higher level through the year.
Everything in Moderation
Mortgage-rate volatility has subsided over the past week. The mortgage rates we have today could easily hold through the week. Market participants are unsure how President Trump’s latest round of tariffs will impact GDP and corporate-earnings growth. (President Trump’s chief economic advisor has quit because of the tariff brouhaha.) Money should stay sequestered in haven investments – which include U.S. Treasury securities – over the near-term.
The latest Federal Reserve Beige Book, a report on Fed officials’ outlook on the economy, is larded with “moderation.” Fed officials see moderate employment growth, moderate economic growth, and moderate wage-rate growth.
Moderation in the growth of the important economic variables is to credit markets what the color beige is to a listed home: it’s inoffensive. It fails to motivate action one way or the other. Everything holds its place.
So, given what we know today, we see mortgage rates holding the tight range that they’ve held for the past couple of weeks. This suggests that any improvement in mortgage rates offers a reason to lock.
Info@DoctorMortgageAlliance.com (800) 385-0766
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