MReport February 2021

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M R EP O RT | 37 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Affordability Has Increased for Many Median-Income Buyers A Q4 report reveals how construction trends, migration, and low interest rates are making the American Dream attainable for many, even as home prices rise. W hile house prices are rising in a robust market, low interest rates are making homeownership more affordable than it was 20 years ago, according to the winter edition of "The Housing and Mortgage Market Review (HaMMR)," released by Arch Mortgage Insurance Company (Arch MI). The review—created by Arch MI's Chief Global Economist Ralf DeFranco, SVP Rob Hardie, Senior Writer Jo Fleischer, and Senior Graphic Designer Jordan Yuen—focuses on affordability and its impact on the rate of home- building across the nation. It also examines how historically low mortgage rates are contributing to increased affordability for median income buyers across the nation. Additionally, the authors look at the potential impact Biden's administration will have on hous- ing policy and detail trends in the nation's Five Most Affordable Cities with growing job markets (Indianapolis, Indiana; Atlanta; Raleigh, North Carolina; Columbus, Ohio; and Nashville). "Home prices have been ris- ing steadily, but historically low mortgage rates are contributing to increased affordability for median- income homebuyers in large parts of the country," Hardie said. "Another factor is that many po- tential homebuyers are working at home and are increasingly focused on larger properties in suburbs, exurbs, and rural areas where af- fordability is higher. We also look at how the ability to more easily increase housing stock in a given area impacts affordability." As for how home construc- tion will impact both supply and affordability, researchers point to the words of Robert Shiller, who theorizes the following in his book "Irrational Exuberance:" "If ever home prices were to exceed the cost of construction, there would be an incentive for builders to supply more homes, and a steady increase in supply would continue until the extra supply depressed price back down to cost." The Arch MI researchers noted in the review that this ability to add new supply is, "in theory, a safety valve that helps regu- late housing cost in most of the country." The authors noted that, at a national level, they expect demographics to drive continued robust housing demand as more millennials reach the age where they will form households and buy homes, particularly in this rate environment. The aforementioned suburban migration trend is "a good thing for affordability given the lack of ability to increase housing stock easily in the downtown areas of larger cities." They added that even with such a shift, net new demand is likely to be greater than the rate at which builders are building new homes, which they say will exacerbate the multi-year low levels of available supply. "As President-elect Joe Biden takes office, maybe he should take a page out of President Franklin D. Roosevelt's book with a 'Housing New Deal' to incentivize the addition of new single-family housing stock to keep affordabil- ity in check while creating jobs in the construction sector," the authors said. The HaMMR also explores other potential market movers such as: How the new administration could reshuffle housing policy, and, in particular, how the new capital rule will drive prices and increase risk; what the potential exits of Fannie Mae and Freddie Mac from government conserva- torship will mean; and what an updated definition of qualified mortgage mean for lenders and borrowers.

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