High Interest Rates Impact Housing Affordability and Buyer Demand

The November 2023 Mortgage Monitor Report from the Intercontinental Exchange highlights the mounting challenges in home affordability and buyer demand, driven by rising interest rates, which reached a peak of 7.80% in October. Compiled by ICE Mortgage Technology, the report illustrates the increasing hardships that homebuyers and borrowers are encountering as interest rates have hit a 23-year high.

Data from the ICE Home Price Index and Collateral Analytics reveals that the principal and interest (P&I) payment for a median-priced home now consumes nearly 41% of the median monthly income, marking a historical high. This payment has increased by $144 over the past month, surpassing $2,500 per month. The price-to-income ratio—another crucial measure of affordability—currently stands at nearly 6-to-1, placing additional pressure on consumers.

This surge in interest rates has resulted in a notable decline in mortgage applications for home purchases, with applications running 47% lower than pre-pandemic levels during the week of October 26th. While purchase lending continues to be the primary focus for lenders, recent refinance efforts have largely been driven by cash-out transactions tapping into home equity.

The report mentions that the rate/term refinance market is virtually non-existent at this time, with limited cash-out lending occurring among a small group of borrowers. Homeowner equity has grown alongside rising home prices and is now just 2% shy of the peaks observed in 2022. U.S. mortgage holders possess approximately $16.4 trillion in home equity, of which $10.6 trillion is deemed ‘tappable equity.’

However, borrower retention is experiencing a 17-year low, as lenders struggle to connect with customers looking to access their equity through cash-outs, revealing challenges in identifying and marketing to potential transactors in the current market.

Additionally, tight inventory levels have pushed home prices to an all-time high as of September, showing an annual growth rate of 4.3%. Yet, with rates having increased by 75 basis points since the sales that closed in September went under contract, consumer purchasing power has diminished by another 8%. These trends suggest that home prices may weaken as 2023 progresses.

In the context of these market conditions, the Intercontinental Exchange has demonstrated resilience, with recent data indicating a market capitalization of $61.77 billion and revenue growth of 2.59% over the past twelve months as of Q3 2023. The company has also secured a consistent dividend growth rate, increasing by 10.53% during the same period.

Moreover, insights reveal that ICE has raised its dividend for 11 consecutive years and has remained profitable in the last year. Despite a downward trend in earnings per share, net income is anticipated to grow this year, pointing to potential future profitability.

For those interested in deeper insights, additional tips related to ICE are available, offering a more comprehensive understanding of the company’s performance and prospects.