AEI Housing Market Indicators, June 2023

Video Recording

Key Takeaways

• Purchase rate lock volume was down 40% from 2022 while median rates rose 1/8 ppt. to 6 5/8%.
  • March 2023 agency purchase loan volume, which is currently at 2015 levels, increased 39% from February, marking the third largest Month-over-Month (MoM) change in March from 2013-2023.
• Deceleration of Year-over-Year (YoY) Home Price Appreciation (HPA) seems to have bottomed out.
  • May 2023’s YoY HPA was 1.8%, slightly down from 1.9% a month ago and 16.5% a year ago.
  • Given historically low supply, cooling, yet still strong job numbers, low foreclosures, work from home, and continued home price arbitrage opportunities, we changed our YoY HPA projection to +6% for December 2023.
  • Months’ remaining supply for May (not seasonally adjusted) was at 3.1 months. Housing inventory continued to run below pre-pandemic levels and showed minimal seasonal increase, which helps explain the recent Month-over-Month home price appreciation increases.
• Introducing Modern Mortgage Theory, the housing finance equivalent of Modern Monetary Theory.
  • Loosely defined as the government can stimulate as much demand as it likes against a limited supply to make housing more affordable, expand the homeownership rate, particularly among disadvantaged groups, and lower the wealth gap. Whatever problems ensue can be dealt with since the government guarantees almost all mortgages and regulators control the finance and monetary systems.
  • What could possibly go wrong?
• Another pointless pricing war: Recent FHA and FHFA pricing changes
  • In response to FHFA’s announcement on Jan. 19 of the new Loan Level Pricing Adjustments (LLPAs) for GSE loans that are effective May 1, the FHA announced on Feb. 22 an MIP cut effective March 20.
  • Following the MIP cut, FHA’s market share increased to 23.1% in March 2023, compared to 21.0% in February 2023, and 17.9% in March 2022.
  • In March 2023, the composite NMDR increased to 14.4% from 14.0% a month ago, largely due to the increase in FHA share
• The homebuilders’ response to rising mortgage rates.
  • Builders, especially the largest builders, are weathering the rapid increase in rates and avoiding price cuts by expanded use of permanent and temporary rate buydowns.
  • Until 2022, the existing home sales and new construction sales had roughly the same note rates. However, since February 2022, a growing gap has started to emerge between the two series, as the month’s supply of new homes began to increase.
  • The largest builders seem to be providing lower rate financing through “bulk forward commitments.”
  • The share of new and existing purchase loans with temporary buydowns started to increase in August 2022, peaked at 7% in Dec. 2022, and currently stands at 5%.
• A response to the recommendations of the PAVE working group.
  • We agree that the appraisal industry needs to change. Any reform must identify and address the root causes of the industry’s problems, immediately identify and address any appraiser racial and ethnic bias and inaccuracies, and avoid overreach and unintended consequences.

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