The Urban Institute’s January 2019 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes new figures describing the cash-out share of all refinances, historical debt-to-income ratios for purchase originations, and months of housing supply.
Mortgage Media Senior Advisor and housing policy expert Dave Stevens will add commentary on a public call with the Urban Institute tomorrow, January 30, at 11am eastern.
The following is republished with permission from the Urban Institute.
Thank you for being a valued reader of this chartbook over the years. We are starting off 2019 with several new charts with more relevant and topical content. Specifically, we are adding data related to the following four topics:
- Cash-out refinances (page 10)
- The availability of housing credit (pages 13-14)
- Long-term historical perspective on debt-to- income ratios or DTIs (page 15)
- Housing supply (page 20)
Cash-out refinances have been in the news recently as the cash-out share of all refinances is now close to bubble-era highs. This has fueled concern about a return to the excesses in lending at the root of the last housing crisis. While the cash-out share of allrefis has no doubt surged, the increase is driven by a sharp curtailment in rate refi activity, as opposed to a boom in cash-out volumes. As shown on page 10,in Q3 2018, US homeowners extracted a total of $14.6 billion in home equity through cash-out refinances. In Q3 2006, the number was over $80 billion. Additionally, we expect future cash-out activity to remain tempered because homeowners with ultra-low rate mortgages will be highly reluctant to refinance to a higher rate. Instead, we would expect to see a comeback of the second lien market.
We have added more detail on our housing credit availability index (HCAI) that shows the HCAI for each origination channel separately:
- Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac,
- Government (the Federal Housing Administration, Veterans Affairs and the US Department of Agriculture) and
- Fully private (portfolio and private label securities.)
This breakout allows for a more detailed comparison of credit conditions across channels and shows that credit remains very tight by historical standards for all three channels. Having said that, since the post-crisis lows, the GSE channel has expanded the credit box for borrowers proportionately more than the government and private channels.
The rise in DTIs in recent years has been another source of concern for housing market observers. The median DTI for purchase originations in October 2018 was 40 percent, roughly equal to the bubble-era peak. The median DTI for government loans was even higher at 43 percent. While this bears monitoring, we note that DTI is only one of the several dozen variables that determine how risky any given mortgage is. For instance, the median FICO score for today’s originations is about 30 points higher compared to the pre-bubble era, thus offsetting the risk of higher DTIs. Moreover, rising DTIs are an inevitable result of rising interest rates. A 1 percent rise in interest rates from 3.5 to 4.5 percent, the move since the 2016 election, will result in a 13 percent rise in monthly payments, raising the DTI ratio. We will be monitoring the rise in DTI for additional evidence of risk-layering
Finally, given the historic shortage of housing, we added a data on months of supply, housing starts and home sales on page 20. As of November 2018, there was a total of 3.9 months of supply on the market. Pre-bubble, from 1999 to 2005, it averaged about 5 months supply.
Lastly, we reorganized the chartbook for better overall flow and readability. We consolidated a few charts to eliminate duplicity and to improve general readability. We hope you enjoy the new data. If you have any questions about any of the changes, please email us at: firstname.lastname@example.org