The number of potential U.S. homeowners who could refinance their homes plunged by over 50 percent within a few weeks of the presidential election as home affordability went down to a post-recession low, according to Black Knight’s October Mortgage Monitor.

As was reported in Black Knight’s most recent First Look release, other key results include:

Total U.S. loan delinquency rate:  4.35%
Month-over-month change in delinquency rate: 1.84%
Total U.S. foreclosure pre-sale inventory rate:  0.99%
Month-over-month change in foreclosure pre -sale inventory rate:  -0.95%
States with highest percentage of non-current* loans:   MS, LA, NJ, AL, NY
States with the lowest percentage of non-current* loans:  SD, MT, MN, CO, ND
States with highest percentage of seriously delinquent** loans:  MS, LA, AL, AR, TN
*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.
**Seriously delinquent loans are those past-due 90 days or more.
Totals are extrapolated based on Black Knight Financial Services’ loan-level database of mortgage assets.

Black Knight said that post-election and with 30-year mortgage rates climbing 49 BPS, 4.3 million homeowners no longer had the ability to refinance. Black Knight Data & Analytics Executive Vice President Ben Graboske had said that the effects have been dramatic, but must still be seen in the proper historical context.

On a good note, third-quarter mortgage originations were at the highest volume since Q2 2009. They were up 6% from Q2, due to a 17% quarterly rise in refinance lending. There were $270B in refinance originations for Q3, which marked the largest quarterly volume since Q2 2013. However, recent spikes in mortgage interest rates suggest this balloon in refinance lending is likely to be short-lived.

Black Knight reported a slight quarterly decline in purchase lending. There were $579 billion in loans originated in Q3 2016, but overall purchase origination growth is slowing, especially for A+ credit borrowers (740+ credit scores). These borrowers account for two-thirds of all purchase lending so this slow down may indicate a bear market.

“The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year Treasury and 30-year mortgage interest rates,” said Graboske. “As mortgage rates jumped 49 BPS in the weeks following the election, we saw the population of refinanceable borrowers cut by more than half. From the 8.3 million borrowers who could both likely qualify for and had interest rate incentive to refinance immediately prior to the election, we’re now looking at a population of just 4 million total, matching a 24-month low set back in July 2015.

Graboske further stated, “While there are still two million borrowers who could save $200 or more per month by refinancing and a cumulative $1 billion per month in potential savings, this is less than half of the $2.1 billion per month that was available just four short weeks ago. These changes will likely have an impact on refinance origination volumes moving forward. And, since higher interest rates tend to reduce the refinance share of the market – specifically in higher credit segments – which typically outperform their purchase mortgage counterparts, they may potentially impact overall mortgage performance as well.

“In addition, from an affordability perspective, that 49 BPS rise in interest rates was the equivalent of the average home price jumping by over $16,400 basically overnight. It now takes 21.6 percent of the median income to purchase the median home nationally. That’s the highest share of median income needed to buy the median home since June 2010, when rates were at 4.75 percent, but the average home was worth nearly 20 percent less than it is today.

Even though we’re still 10 percent below long-term historic norms for affordability, the last time we saw affordability near this level – in late 2013 at 21.4 percent – home price appreciation experienced an immediate pullback, decelerating from nine percent to below five percent nationally. With that recent historical precedent, it’s worth watching to see how home prices react to such an abrupt rise in rates over the coming months, particularly as we await the Federal Reserve’s next moves on the benchmark federal funds rate,” Graboske said.

Erik Sandstrom
LoanSafe's Mortgage Expert
I'm a Senior Loan Officer and LoanSafe mortgage expert. If you need a live rate quote, or need help getting a new mortgage, please call me direct anytime at 619-379-8999.