MReport January 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 35 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 High Rental Prices Driving Homeownership With rising interest rates, growing home prices, and high rental costs, it can be difficult to decide whether to buy or to rent—in terms of affordability. A ccording to a recent report by the Urban Institute's researchers Sarah Strochak and Sheryl Pardo, affordability between rent vs. buy is different across the country. Their research found that in 17 of 33 large metropolitan statistical areas (MSAs), it's cheaper to own a home, putting 3.5 percent down, than it is to rent. In 16 of the 33 MSAs, it's cheaper to rent than to buy a home. "In over half the MSAs we studied, owning a home was more affordable than renting on a monthly basis, and in nine of these cities, homebuyers could save more than 3 percent of their incomes," the authors noted. The city with the largest negative rent gap in the U.S. is Miami—where the median bor - rower would save 11 percent of their income if they bought the median-priced home with 3.5 per- cent down instead of renting. However, it's not cheap to buy a home in the city that ranks 11th in mortgage affordability nationally, with a median mortgage pay - ment that consumes 32 percent of the median income. Since Miami ranks the second most expensive city for rental housing with the median rent consuming 42 percent of the median income—homeown - ership is still the best option. Other cities with high rental costs but more affordable homes include Chicago, Orlando, and Tampa. Chicago's rent gap is about 6 percent, while Orlando and Tampa have rent gaps of 3 and 5 percent, respectively. The most expensive city for homeownership, San Francisco, serves as the best example of an MSA where renting is the more affordable option. According to the data, monthly payments for a mortgage on the median-priced house with 3.5 percent down takes up 80 percent of the median bor - rower's income. In comparison to renting, the borrower making the median income would pay 37 per- cent of that income in rent—repre- senting almost a 43 percent gap. The West Coast provides other cities where renting is more viable. In Seattle a borrower who buys a home with a low down payment there could pay an additional 8.6 percent of their income on housing. Six California cities have rent gaps that exceed 4 percent, including Los Angeles, Riverside, Sacramento, San Diego, San Francisco, and San Jose. Other cit - ies where renting is notably cheaper include Las Vegas and Portland. Mortgage Credit Loosens as Investors Step In Mortgage credit is up month-over-month thanks to more investors getting into the market and an increase in conventional offerings, a report finds. M ortgage credit avail- ability increased 0.8 percent to 182.4 in November, indicating loosening credit. The MBA's Mort - gage Credit Availability Index (MCAI) attributes this increase to a rise in investor offerings. Analyzing data from Ellie Mae's AllRegs Market Clarity business information tool, the MCAI gauges mortgage credit availability in a given month and over time—the index was benchmarked to a rat - ing of 100 in March 2012. The MCAI tracks four com- ponent indices: Jumbo MCAI, Conventional MCAI, Government MCAI, and Conforming MCAI. The Government MCAI includes various government loan programs such as those from the Federal Housing Association (FHA), U.S. Department of Veterans Affairs (VA), and United States Department of Agriculture (USDA). The other three indices track various non- governmental loans. The Jumbo MCAI experienced the greatest increase in availability over the month—up 3.8 percent. Following suit was the 2.8 increase in the Conventional MCAI, and the 1.8 percent increase in the Conforming MCAI. Meanwhile, the Government MCAI decreased from last month—down 0.7 percent. "Mortgage credit availability increased in November driven by a net increase in investor offerings. While the number of offerings for government-backed programs (FHA/VA/USDA) declined modest - ly, conventional offerings increased more strongly over the month among both jumbo and conforming programs," said Lynn Fisher, MBA's VP of Research and Economics. The report notes that the Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk and availability for their respective index. The MCAI takes into account factors such as credit score, loan type, and loan-to-value ratio. It is updated on a monthly basis. "In over half the MSAs we studied, owning a home was more affordable than renting on a monthly basis, and in nine of these cities, homebuyers could save more than 3 percent of their incomes."

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