We all know that mortgage rates have been moving higher and higher, but the real MVP of this post are the home values as well as rising debt-to-income ratios
Black Knight recorded its highest year-over-year home price growth at 19.6%. Notably, the annual growth rate was at least 10% in all of the nation’s markets for the first time in history, with the top slots coming in as high as 30%! This is in areas like Tampa, Raleigh, Phoenix, Austin and Nashville. All of us in the industry know how crazy the Miami price growth has been, but it did not even come in top 10! While these appreciated figures are very much in line with other HPI’s, or home price indices, the most disturbing data is in the average mortgage payment associated with the average priced home. Rates are now lower than they have ever been before, even with the most recent FED hikes. However, the difference in price has now offset the difference in rates.
However, the average payments only provide us with half of the puzzle. The next set compares median home income to the average home prices to keep up with Fannie/Freddie’s, and most NON-QM product’s, Debt-to-income ratio requirement. In other words, what percentage of the homebuyer’s income is needed to come up with the monthly payment. The rule of thumb is that only 50% of your monthly income can go towards your mortgage payment, or you will not qualify. For some loan programs, like interest-only, the DTI can only be as high as 43%. Plus, the higher your DTI, the worse your pricing!
As the chart shows, the ratio was only ever higher for the few years leading up to the financial meltdown. This is also the average for the U.S. In some areas like Miami, this ratio is as high as almost 35%! Now, all of this does not mean that it will produce the same result as in 2008. There were many more factors in play back then that contributed to the meltdown, like horrible lending standards, however it does open our eyes and keep us on our toes for the near future.