This Summer Selling Season Creates Buyer Opportunities
As the summer selling season begins in earnest two market variables create opportunities for buyers. The Mortgage Bankers Association released its Mortgage Credit Availability Index (MCAI) This Week in Real Estate, reporting mortgage access increased for the fifth consecutive month in May. Increases in the MCAI means the loosening of credit. In addition, the decline of mortgage rates has resulted in the annual growth rate for the typical mortgage payment dropping below that of home prices. Below are a few highlights from the second week of June that influence our business:
Credit Availability Rises for Fifth Consecutive Month. Mortgage access increased in May for the fifth consecutive month. The Mortgage Bankers Association (MBA) said its Mortgage Credit Availability Index (MCAI) rose 1.9 percent to 189.5. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.) gathered from over 95 lenders and investors. They are combined with data from an AllRegs proprietary product to calculate a summary measure indicating the availability of mortgage credit at a point in time. The MCAI and its components are designed to show relative credit risk/availability for their respective indices and were benchmarked in March 2012. The total MCAI, Conforming, and Jumbo indices were indexed at 100 while the Conventional and Government indices were indexed at 73.5 and 183.5 respectively to better represent where each index might have been relative to 100. “Credit supply increased 2 percent in May, driven by the fifth straight gain in the jumbo index, which was up 7 percent and surpassed last month as the new all-time survey high,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The conventional index continues to grow, while the government index has generally been lower this year. Government credit supply continues to decline since peaking in 2017, as there are fewer streamlined refinance programs being offered.”
Homebuyers Face Much Slower Growth in the “Typical Mortgage Payment” This Year. Last year’s rising mortgage rates meant the monthly payments that many homebuyers struggled to qualify for were rising much faster than home prices. In November 2018, for example, the U.S. median sale price rose about 4% year over year, but the principal-and-interest payment on that median-priced home – what we call the “typical mortgage payment” – surged 17% because mortgage rates had risen a percentage point. By March this year, however, declining mortgage rates had resulted in the annual growth rate for the typical mortgage payment dropping below that of home prices. Moreover, some rate and price forecasts suggest the mortgage payments homebuyers face the rest of this year will, on a year-over-year basis, be only slightly higher or a tad lower, which could help spur home sales. Looking ahead, the CoreLogic Home Price Index (HPI) and HPI Forecast suggest annual gains in home prices each month from this April through next March will average 4.3%. That forecast, combined with the average among six mortgage rate forecasts, suggests that over that same period the annual change in the typical mortgage payment each month will average out to a gain of 0.9%, including five months in which there is a slight annual decline.
Consumer Credit Posts Highest Yearly Increase Since July 2017. As of April 30, 2019, consumer credit totaled $4.1 trillion on a seasonally adjusted basis, with $1.1 trillion in revolving debt and $3.0 trillion in nonrevolving debt. The latest monthly year-over-year percentage increase of 5.3% in the outstanding debt is the greatest change that has occurred since July 2017, driven primarily by increases in nonrevolving debt. The increase in nonrevolving debt is a good sign for the sentiment of American consumers, as it signifies that they are confident in willing to make larger purchases, including houses.