Global Economics

Housing Collapse Coming Right Up

Mortgage rates are high and rising. Refinancing opportunities are nonexistent; home affordability has collapsed.

The latest Black Knight Mortgage Monitor is worth a very close look.

Here's what the report says about the feature chart.

  1. Recent rate jumps coupled with climbing home prices have increased the cost to purchase the median home by $67/month (+6 percent) over the past six weeks.
  2. Overall, it costs $1,141 in monthly principal and interest to purchase the median home using a 30-year fixed mortgage with 20 percent down, the largest monthly payment required since late 2008.
  3. It currently takes 23 percent of the median income to purchase the median home, the highest share since 2009.
  4. However, overall affordability remains better than long-term historical averages, even taking the recent rate jump into consideration. Purchasing the median home requires one percent less of the median income than 1995-1999, three percent less than 2000-2003 (before the sharp run-up in home prices) and two percent below those combined benchmarks (1995- 2003).
  5. Average incomes are more than 20 percent higher today than in 2006 (according to the Census Bureau) and interest rates 2.3 percent lower. As such, affordability remains much better than at the pre-recession peak, even though today’s home prices have surpassed 2006 levels.
  6. Assuming all else remains equal, to return to 2006 affordability levels, interest rates would have to climb north of 8.0 percent or the median home price increase to $420K.

Statistical Nonsense

Black Knight is correct on points 1-3. Statistically, it is correct on points 3-6. However ...

Regarding point 5: It's not average incomes that matter, it's median incomes.

And real median incomes have declined in seven out of the last 11 years.

Regarding points 4 and 6: Those who want a home and can afford a home have a home. The rest struggle because incomes have not kept up with home prices.

Notions of affordability are statistical nonsense. Black Knight does mention some of these issues in relation to other charts.

Home Price Appreciation by Tier

  1. Rising interest rates may put more pressure on borrowers with below average incomes buying below average priced homes.
  2. Affordability is lower in those segments compared to long-term benchmarks, and rising interest rates put more strain on affordability.
  3. The annual rate of appreciation on Tier 1 properties (lowest 20 percent by price) is 1.9 percent higher than the overall market average.
  4. Although the margin has declined in recent months, as of December 2017, the Tier 1 annual rate of appreciation was 75 percent higher than that of Tier 5 (a difference of 3.6 percent).
  5. Tier 1 home prices have now been the fastest appreciating quintile nationally for 67 consecutive months. The same trend holds true in 45 of 50 states and 90 of the nation’s largest 100 metro areas.
  6. Larger overall increases in value among lower-priced homes is not just a recent trend, though; the same dynamic is observed when looking back over the past 15 years.


Black Knight is six for six on that analysis.

It gets worse.

Refinancing Opportunities

Wants vs Needs

Anyone seeking to refinance will discover the opportunities have essentially vanished.

Anyone needing to refinance to lower their payments is in outright trouble.

Refinance Woes

Affordability Silliness

Brush aside affordability silliness.

It's not the the average income that matters. Not even the median income matters.

It is the median income of those looking to buy a home that matters!

On that there are no stats. But take another look at the lowest tier home price appreciation charts.

Compare tier one housing prices to real median wages, down seven of the last 11 years as noted in How the Fed's Inflation Policies Crucify Workers in Pictures.

Next, factor in millennial attitudes towards debt coupled with their desire to remain mobile, and you know where housing is going based on this data.

Expect a Housing Collapse

The more hikes the Fed gets in, the bigger the collapse and the bigger the resultant deflation.

Mike "Mish" Shedlock

30 Responses

  • tedr01

    Mar 5, 2018

    If you are right than 1930's here we come. Where is Helicopter Ben Bernanke when we need him??

  • Latkes

    Mar 5, 2018

    >Overall, it costs $1,141 in monthly principal and interest to purchase the median home using a 30-year fixed mortgage with 20 percent down, the largest monthly payment required since late 2008. Isn't this number nominal, not adjusted for inflation? If so, then you should also use nominal wages in your analysis, not real.

  • tedr01

    Mar 5, 2018

    I think 2008 is the key. Remember what happened to housing and the economy in 2008?? Blood on the streets.

  • Rayner-Hilles

    Mar 5, 2018

    No no no, Mish, you've got it all wrong. The world economy is overheating and wages across the board are inflating like mad. Mortgage rates have to go up to stop too many people buying houses too quickly so that wages increase even more so. This is a housing overaffordability crisis. ...Why just the other day I got a huge raise (again) so I decided I was going to buy a third house just because, but after seeing the going rate of mortgage in my city online I decided it would be best to save the disposable income at my bank. The Fed are a smart lot indeed.

  • Rayner-Hilles

    Mar 5, 2018

  • Latkes

    Mar 5, 2018

    tedr01, you have completely missed the point of my comment.

  • Jojo

    Mar 5, 2018

    Interesting housing idea that could put a serious dent in the housing and apartment markets if it spreads throughout California (and elsewhere). What if this were extended to make a room with shared facilities equal to a condo? How much space do you really need? A lot less than you think if single and when you get older and the kids are gone. I like this! Dorm Living for Professionals Comes to San Francisco March 4, 2018 SAN FRANCISCO — In search of reasonable rent, the middle-class backbone of San Francisco — maitre d’s, teachers, bookstore managers, lounge musicians, copywriters and merchandise planners — are engaging in an unusual experiment in communal living: They are moving into dorms. Shared bathrooms at the end of the hall and having no individual kitchen or living room is becoming less weird for some of the city’s workers thanks to Starcity, a new development company that is expressly creating dorms for many of the non-tech population. Starcity has already opened three properties with 36 units. It has nine more in development and a wait list of 8,000 people. The company is buying a dozen more buildings (including one-star hotels, parking garages, office buildings and old retail stores), has raised $18.9 million in venture capital and hired a team of 26 people. Starcity said it was on track to have hundreds of units open around the San Francisco Bay Area this year, and thousands by 2019. These are not micro-units, nor are they like WeWork’s WeLive housing developments, where residents have their own small kitchens, living rooms and bathrooms but share common event space and industrial appliances for parties. These are not single-family homes that are being used as group houses. Instead, Starcity residents get a bedroom of 130 square feet to 220 square feet. Many of the buildings will feature some units with a private bath for a higher rent. But Jon Dishotsky, Starcity’s co-founder and chief executive, said a ratio of one bathroom for every two to three bedrooms makes the most sense for large-scale affordability. The average one-bedroom apartment in San Francisco rents for $3,300 a month, but Starcity rooms go for $1,400 to $2,400 a month fully furnished, with utilities and Wi-Fi included. ....

  • Blurtman

    Mar 5, 2018

    My great grandmother ran a boarding house during the Great Depression. Dorm living for the economically depressed. The more things change,....

  • KidHorn

    Mar 5, 2018

    A lot depends on the specific location. In the Washington DC area, home prices have been relatively flat over the past few years and a typical house is affordable for most families. Historically DC has been relatively immune to housing busts since the federal government is a very stable employer and pays well. In areas that are prone to boom and doom, like Las Vegas, they'll suffer the most.

  • klausmkl

    Mar 5, 2018

    More endless dribble. Rates are at 4%. I paid 11% in the 80's. the issue is that rates have been low for so long everyone is spoiled. Sure we are in a bubble for housing. Bubbles can go on for long periods of time. Just look at Sydney Australia. They have been in a housing bubble for decades and are still in it. stop crying and figure out how to make some money. That is your real issue.

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