Although they covered the topic in last month's
Mortgage Monitor, further declines in
interest rates have prompted Black Knight to take another look at the impact on
the refinance pool. The previous edition reported that the 30-basis point drop
in the 30-year fixed rate mortgage from a post-recession peak in November to
4.55 percent by the end of December had boosted the pool of borrowers who could
qualify for and benefit from refinancing by more than a half million. At that
point the pool had returned to 2.4 million homeowners who could reduce their
rate by at least 0.75 percent.
Since then the rate has fallen to 4.45
percent, the lowest since last April, and the refinance pool has grown to 2.9
million, 1 million more than when rates were at their peak, and the largest
this population has been since January 2018. Black Knight says, "Even if rates
should hold steady - and certainly if they fall further - this could lead to an
unexpected bump in refinance volumes in early 2019.

Of course, any bump is predicated less on who might
refinance rather than on who will. Forty
percent of those who have regained their refinance incentive (424,000) took out
their current mortgage between 2009 and 2011 and 75 percent of the incentive
gains would be on loans originated pre-2011.
In fact, about 90 percent of all refinancing incentive is held by borrowers
with loans originated prior to 2011.
Black Knight points out that a large portion
of those homeowners would have benefited from refinancing for a long time and
when rates were even lower but have not done so. This suggests that the incentive
to refinance may not be as strong as the numbers indicate. On the other hand, rates for home equity
lines of credit (HELOCs) are rising, so homeowners wishing to tap equity but
who haven't done so because of the rising cost of doing so may opt to cash out
through full refinancing this year.
Loans held in private label securities (PLS) are
generally the ones that would benefit the most from refinancing, with 12.1
percent of loans falling into the pool.
Those owned or guaranteed by Fannie Mae or Freddie Mac have grown the most
since November. The lowest refinance/prepayment risk is among portfolio loans,
but their small overall numbers means the 1.4 percent increase represents an 81
percent increase in population.
Portfolio loans, especially those originated in recent years, tend to
have higher credit score and larger balances, perhaps giving borrowers more
reason to respond to the renewed incentives.

Home prices were also addressed by the Mortgage
Monitor for the second time in as many issues, as their slower rate of growth
becomes more apparent. The average home
prices declined by 0.2 percent or $580 in November. It marked the first
consecutive three-month pullback in prices and the largest single month decline
since early 2012. The average home price
is now down $1,361 since August. The annual rate of appreciation also slowed in
November, falling another 0.4 percent to 4.9 percent. In February 2018 the annual
rate of appreciation peaked at 6.7 percent.
Black Knight points out that the 30-year
mortgage interest rate was at the highest average in over 7 year making the
monthly mortgage payment at that point the least affordable in nearly a decade.

Despite recent declines prices remain higher
than a year ago in all 50 states and all but one of the 100 largest housing
markets. Still, the rate of appreciation is down in 36 states and 78 markets
with the greatest degree deceleration in the West. The annual rate in California declined from
10.3 percent to 3.7 percent in just nine months while Washington State slowed
to 6.7 percent from 12.5 percent over the same period. These changes have brought
home price growth into more uniformity nationwide.


The combination of
softening home prices and lower rates have improved the home affordability
outlook for 2019. While the P&I payment on an average priced home is more
than 10 percent higher than in January 2018, it has declined by $56 since
November. Assuming a 30-year mortgage at 4.45 percent, that payment is now
$1,192.