AEI housing market indicators, December 2020

Slides · Methodology

The American Enterprise Institute’s Housing Center released its monthly update to the AEI Housing Market Indicators on December 1st, 2020.

This month’s main takeaways include:

  • Driven by the lowest mortgage rates in history, counts for all loan purposes were at or near series’ highs in August 2020. No cash out and cash out refinances are blowing past their prior highs.
    • Compared to a year ago, no cash out refis are up 250 percent and cash out refis are up 43 percent.
    • Agency purchase loan volume set a series’ high for August. YTD volume is up 30 percent compared to a year ago.
    • Based on Optimal Blue data, we predict that loan counts will remain elevated through at least November.
  • With the onset of the COVID-19 virus, FHA and VA have seen further tightened lending standards for borrowers with lower credit scores.
    • Even before the virus, many agencies prudently tightened credit through policy changes.
    • The first-time buyer (FTB) MRI is back to its 2013 level.
    • Due to the influx of higher quality borrowers taking advantage of historically low mortgage rates, the Refi NMRI has declined quite dramatically, but due to higher volume, expected defaults remain elevated.
  • Americans on the Move
    • The purchase rate lock shift towards lower density continues. It is especially prevalent in the New York, Sacramento, Fresno, San Antonio, Oklahoma City, and Buffalo Consolidated Statistical Areas.
  • Preliminary national rate of Home Price Appreciation (HPA) for October 2020 was 9.9 percent. HPA has reached a peak for the year and is up from 5.5 percent in October 2019.
    • HPA has picked up across nearly all major metros as months’ supply remains at series lows.
    • Low mortgage rates combined with about two months supply mean that HPA will remain strong over the coming months as also indicated by Optimal Blue data.
    • Since 2012, home prices have appreciated at about three times the rate of market fundamentals such as construction cost or wages.

The AEI Housing Market Indicators provide accurate and timely metrics for the housing market. These include Mortgage Risk/Leverage (with a particular focus on agency first-time buyer volume and risk), house prices and appreciation trends, housing sales (new and existing sales whether institutionally financed, cash, and other-financed), and inventory levels. Since the housing market is influenced by many different factors, all need to be considered together to better understand market trends.

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