|Home prices continue to reach new highs, with the most recent data showing prices for existing homes at a median of $276,900 in June; new homes are even more expensive at a median of $302,100. The annual increase in home prices has been outpacing income growth since 2012. As a result, homebuyers have been stretching more and more to purchase their dream homes. Low interest rates have masked this to some extent, as they have subdued the monthly payment, but the recent increase in interest has reduced this mitigating factor.
A well-known rule of thumb says that the home price should not exceed three times the buyer’s annual income. When a mortgage is used to buy a house, the ratio of amount borrowed to income is the extent to which a borrower is leveraged. In this study, we compared leverage ratios across cities to see where borrowers are stretching the most to purchase a home.
They used Home Mortgage Disclosure Act (HMDA) data that includes over 7 million mortgages originated in 2017 to calculate the leverage rate of borrowers in the 50 largest cities in America. The median amount borrowed was divided by the median borrower income for all purchases in the HMDA database for 2017.
This means that the time spent commuting is a major consideration on where to relocate and purchase the next home, the longer the commuting time – potentially, the less desirable a city or neighborhood becomes.Source: LendingTree Study
What Happened to Rates Last Week?
|Mortgage backed securities (FNMA 4.50 MBS) lost -23 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher for the week. It was the second straight week of higher rates with MBS selling off a total of -39 basis points over the past two weeks.
Overview: We had very strong economic data all week with big readings in Manufacturing (1/3 of our economy0 and Services (2/3 of our economy) and then ended the week with higher wage growth with the Year-over-year Average Hourly Earnings hitting 2.9%.
Jobs, Jobs, Jobs:
Services: The ISM Non-Manufacturing (2/3 of our economy) was very strong and beat out forecasts with a 58.5 vs 56.8 estimate.
The Talking Fed: NY Fed Pres John Williams (voting member) said that steady inflation and low unemployment have created an economy that is “as good as it gets” for the U.S. but that “we can continue to be relatively patient and allow this economy to continue to grow.”
What to Watch Out For This Week:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.