ICE Mortgage Monitor: Positive Signs in Housing, Mortgage Markets Ahead of Spring Homebuying Season

Rhea-AI Summary

ICE's February 2024 Mortgage Monitor Report reveals improved affordability and interest rates, indicating a better housing market environment. The national inventory deficit has improved for the 7th consecutive month, and the annual growth rate of the ICE Home Price Index for December is +5.6%. However, the acceleration in the housing market is a residual effect of last spring and summer's strong growth, and the growth rate is expected to cool in the coming months. Lower interest rates have increased refinance incentive, with $1.6T gained in equity by mortgage holders in 2023, reaching the highest year-end total on record.

Insights

Financial Analyst

The recent report from Intercontinental Exchange, Inc. highlights a notable improvement in housing affordability and a reduction in the national inventory deficit, which could signal a more positive environment for the housing market in the coming months. The observed increase in the ICE Home Price Index to +5.6% year-over-year in December indicates a residual growth from the previous year, suggesting a potential cooling down in the near future. This is critical as housing market dynamics have a direct impact on consumer spending and, consequently, on the broader economy.

From a financial perspective, the increase in equity to an aggregate of $16 trillion, with the average mortgage holder possessing $299K in equity, represents substantial wealth accumulation for homeowners. This could lead to increased consumer confidence and spending, which in turn could stimulate economic growth. However, the concentration of equity among borrowers with high credit scores indicates a disparity in financial gains that could affect market dynamics.

Moreover, the potential for increased refinance activity, especially if mortgage rates fall to 6% by year-end, presents an opportunity for mortgage originators to capitalize on the 'in the money' population. Nevertheless, this also implies a heightened prepayment risk, which could introduce volatility in the capital markets. Investors and originators will need to closely monitor rate movements and prepay activity to mitigate risks associated with such market sensitivity.

Market Research Analyst

The housing market's performance is a bellwether for economic health, influencing sectors ranging from construction to retail. The reported improvements in affordability and inventory, alongside a steady yet slowing growth rate in home prices, suggest a more balanced market ahead. This could potentially lead to a stabilization in the housing sector, which has been characterized by high volatility in recent years due to fluctuating interest rates and economic uncertainty.

While the current trend indicates a more favorable market for homebuyers, the implications for businesses are multifaceted. A healthier housing market may lead to increased consumer confidence and spending, benefiting a variety of industries. However, businesses tied directly to the housing market, such as homebuilders and real estate firms, may need to adjust their strategies in response to the changing dynamics, including a potential decrease in home price growth rates.

Economist

The observed increase in the ICE Home Price Index and the potential for a cooling growth rate align with economic principles that suggest a return to equilibrium following a period of significant growth or decline. The report's data on equity gains and the potential for increased equity lending activities indicate a wealth effect that could stimulate economic activity through consumer spending and investment.

However, the economic implications extend beyond the immediate housing market. The distribution of equity gains among high credit score borrowers suggests a disparity that could have broader socioeconomic impacts. Additionally, the potential increase in refinance activity, while beneficial for mortgage originators, could lead to increased prepayment speeds, impacting the valuation of mortgage-backed securities and the strategies of investors in these instruments.

Overall, the report's findings point to an evolving housing market that could have significant macroeconomic implications, influencing consumer behavior, investment decisions and policy considerations.

- Affordability has improved along with rates in recent months, with the share of income required to purchase the median home falling nearly 5 percentage points from October’s 28-year high

- The national inventory deficit also improved for the 7^th consecutive month which, along with improved affordability, points to a better housing market environment in coming months

- The ICE Home Price Index for December reported an annual growth rate of +5.6%, up from +5.1% in November, which at first glance suggests an accelerating housing market

- That acceleration, however, is a residual effect of last spring and summer’s strong run of growth, with more recent data suggesting that growth rate will begin to cool in coming months

- Lower interest rates have also begun to increase refinance incentive, albeit slowly, with more potential on the horizon, particularly among the 4.3M mortgages originated in 2023

- Of the 2023 vintage, 46% (2M) would be able to cut their first lien rate by 75 bps if 30-year rates fall to a projected 6% by year’s end, with 33% able to save a full percentage point or more

- Mortgage holders gained $1.6T in equity in 2023 to reach an aggregate $16T, the highest year-end total on record, two thirds of which is held by borrowers with credit scores of 760 or higher

- The average mortgage holder now has $299K in equity, $193K of which is “tappable” and could be withdrawn while still maintaining a healthy 20% equity stake

ATLANTA & NEW YORK--(BUSINESS WIRE)-- Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of technology and data, released its February 2024 ICE Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records data sets. Mortgage rates were at 6.71% as of January 24 according to the ICE US Conforming 30-year Fixed Mortgage Rate Lock Index – more than a full percentage point below their October 2023 high. As ICE Vice President of Enterprise Research Strategy Andy Walden explains, this and other recent market trends have produced positive, yet measured, signs for the 2024 housing market.

“Prospective homebuyers may feel an all-too-familiar sense of dread upon hearing that prices – already at record highs – rose another 5.6% in 2023 according to our ICE Home Price Index,” Walden said. “As always, the truth of the situation is more nuanced than one simple, backward-looking metric might suggest, and the data holds some encouraging signals for these folks. In recent months, we’ve seen improvement in rates, affordability, and for sale inventory, with monthly home price growth moderating on a seasonally adjusted basis. While we are still out of sync with historical norms on multiple fronts, each of those metrics have at least been moving in the right direction.”

Research in this month’s report shows today’s market remains interest-rate-driven. The recent rebound in affordability has increased purchase mortgage demand, comparable to levels seen last summer when interest rates were in a similar range. Purchase demand continues to trend very consistently with 30-year-rate changes and their downstream impact on affordability. As Walden explains, the refinance market has also seen some modest improvement, with the potential for more growth throughout the year.

“While the mortgage market remains overwhelmingly purchase-centric, refinance incentive is rising, albeit slowly, alongside easing interest rates,” Walden continued. “Since interest rates peaked back in October, we’ve seen a threefold increase in the number of mortgage holders who could reduce their first lien rate by at least 75 bps with a rate/term refi. And while that population stands at roughly 1.7 million – up from 520K last fall – it is still a historically small number. Should rates fall to 6% by year’s end as current forecasts suggest, the number of borrowers with refinance incentive would rise, particularly among 2023 vintage originations.

“Under that scenario – a potential needle mover for the refinance market – some 46% of 2023-vintage borrowers would be ‘in the money,’ with nearly a third able to cut a full percentage point off their current rates. As more legacy mortgages regain rate incentive as well, the overall ‘in the money’ population would more than double to 3.8 million by the end of the year, with nearly 60% of that growth coming from loans originated in 2023. Originators would do well to identify and engage with these potential customers now. Of course, what’s good news for mortgage originators simultaneously heightens prepayment risk in the capital markets. Getting a granular, daily view of prepay activity will become essential this year as investors navigate an extremely rate-sensitive and volatile market.”

The month’s data also shows that aggregate American mortgage holder equity ended 2023 at $16T – gaining 11% ($1.6T) over the year to reach the highest year-end total on record. The average mortgage holder now has $299K in equity, up from $274K at the end of 2022. Such historically high equity levels create the conditions for an upswing in equity lending when interest rates ease enough to make withdrawals more attractive to homeowners. Two thirds of all equity is held by borrowers with credit scores of 760 or higher, offering lenders a likewise appealing, lower-risk cohort to whom they can offer equity-based products.

Much more information on these and other topics can be found in this month’s Mortgage Monitor.

About Mortgage Monitor

ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

ICE’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.blackknightinc.com/data-reports/

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds, and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges -- including the New York Stock Exchange -- and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines, and automates industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 2, 2023.

Source: Intercontinental Exchange

Category: Mortgage Technology

ICE-CORP

View source version on businesswire.com: https://www.businesswire.com/news/home/20240205574560/en/

ICE Media Contact

Mitch Cohen

mitch.cohen@bkfs.com

+1 704-890-8158

ICE Investor Contact:

Katia Gonzalez

katia.gonzalez@ice.com

+1 (678) 981-3882

Source: Intercontinental Exchange

FAQ

What does ICE's February 2024 Mortgage Monitor Report reveal?

The report reveals improved affordability and interest rates, indicating a better housing market environment.

What is the annual growth rate of the ICE Home Price Index for December?

The annual growth rate of the ICE Home Price Index for December is +5.6%.

How has the national inventory deficit changed in recent months?

The national inventory deficit has improved for the 7th consecutive month.

What has led to an increase in refinance incentive?

Lower interest rates have led to an increase in refinance incentive.

How much equity did mortgage holders gain in 2023?

Mortgage holders gained $1.6T in equity in 2023, reaching the highest year-end total on record.