Black Knight: Rising Interest Rates Cut ‘Refinanceable’ Population In Half

A few months ago, Black Knight’s Mortgage Monitor report was all about how dropping mortgage interest rates were boosting the “refinanceable population,” which is the number of homeowners who could benefit from refinancing based on their equity position and other factors.

Since the election on Nov. 8, however, mortgage interest rates have increased significantly – thus reducing the number of potential refinance candidates by more than 50%, according to Black Knight’s Mortgage Monitor report for November.

In fact, within three weeks of the U.S. presidential election, the average rate for a 30-year fixed-rate mortgage jumped about 49 basis points (bps), according to the provider of mortgage software, data and analytics.

According to the firm, the current refinanceable population now stands at about 4.3 million – down significantly from 8.7 million in August.

Still, as the report points out, those 4.3 million borrowers stand to save quite a lot on their monthly mortgage payments if they refinance at the current rates.

Approximately $1 billion per month in aggregate potential savings remains available, according to the firm. However, that’s down from $2.1 billion as of the end of October.

The report also shows how rising interest rates and rising home prices will combine in 2017 to push homeownership further out of reach for more Americans. The firm finds that it now takes 21.6% of the median monthly income to purchase the median-priced home – the highest share needed since June 2010, when rates were 4.75% but average home values were 20% less than today.

In 2013, when the affordability ratio hit a similar level (21.4%), annual home price appreciation decelerated rapidly, from 9% to below 5%, the firm notes.

Although the effects of rising interest rates and rising home prices have been dramatic, they must be viewed in the proper historical context, says Ben Graboske, Black Knight’s executive vice president in data and analytics.

“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,” Graboske explains in a release. “As mortgage rates jumped 49 basis points (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.

“While there are still 2 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,” he adds. “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.

Ben Graboske says that from an affordability perspective, the recent spike in interest rates was the equivalent of the average home price jumping by more $16,400 basically overnight.

“It now takes 21.6 percent of the median income to purchase the median home nationally,” he says. “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,” Graboske adds. “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.”


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