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October 2023 MORTGAGE MONITOR

As Home Prices Set Yet Another Record in August, Pushing Annual Growth Rate Sharply Higher, Small but Active Cash-Out Refinance Market Defies Traditional Analysis

  • Home prices rose an exceptionally strong seasonally adjusted +0.68% from July; August’s non-adjusted gain (+0.24%) was more than 60% larger than the 25-year same-month average (+0.15%)
  • Along with a lower starting point due to late-2022 price drops, August’s increase was enough to push the annual rate of home price growth to +3.8%, up from +2.4% in July and just +0.25% back in May
  • According to the ICE Home Price Index (formerly the Black Knight HPI), this marked the third consecutive month of home price growth reacceleration after annual home price growth slowed to effectively flat earlier this year
  • Nationally, prices set a fourth consecutive monthly record and are now 2.5% above the 2022 peak on a seasonally adjusted basis, with two thirds of major markets having surpassed their own prior highs
  • Mortgage origination activity remains overwhelmingly centered around purchase loans, which are expected to dominate the market through 2024 and should remain the primary focus of lenders
  • Nine of 10 borrowers who refinanced in August raised their interest rate to tap equity, with an average increase of +2.34 percentage points; simple “in the money” analytics miss this market almost entirely
  • Cash-outs are primarily being sought by borrowers with lower balances – $165K on average – who are looking to withdraw larger amounts of equity at lower rates than current HELOC offerings
  • Average cash-out credit scores are down more than 40 points in recent years, as higher credit borrowers who can qualify are likely opting for HELOCs to tap equity, leaving a lower credit score residual among cash-outs

JACKSONVILLE, Fla. – Oct. 2, 2023 – Today, Black Knight, now part of Intercontinental Exchange, Inc. (NYSE:ICE), released its October 2023 ICE Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records data sets. Among other topics, this month’s report leverages the ICE Home Price Index (formerly the Black Knight HPI) to get the latest reads on the reacceleration of annual home price appreciation (HPA) seen over the last several months. As ICE Vice President of Enterprise Research Andy Walden explains, August was another month of strong price gains.

“After essentially flattening earlier this year, year-over-year home price growth has been reaccelerating for the last few months,” said Walden. “Growth remained strong in August, with home prices up a seasonally adjusted +0.68% from July hitting yet another record high for the fourth consecutive month. It was widespread, as well; prices in nearly half of the nation’s 50 largest markets climbed by +0.75% or more. Even on a non-adjusted basis, August’s gain of +0.24% was more than 60% larger than the 25-year average for the month. Either way you look at it, the increase was sufficient to push annual appreciation up to a stronger-than-expected +3.8%. This marks three months of clear acceleration in the rate of growth at the national level, with annual HPA up from +2.4% in July and just +0.25% back in May. Likewise, August marked the second consecutive month in which annual HPA trended higher in every one of the 50 largest U.S. markets, mirroring the sharp reacceleration we’re seeing at the national level.

“Already baked-in price gains mean further acceleration may be on the horizon. If adjusted home prices were to freeze where they are now, it would result in annual HPA rising above 5% by year’s end given the strong price increases seen earlier this year,” Walden continued. “On the other hand, if the +0.64% per month seasonally adjusted price increases we’ve seen on average in 2023 were to continue, we’d be looking at nearly 8% year-over-year growth by December. All that said, closed sales from August would have typically gone under contract in July, when mortgage rates were 40-50 bps lower than today. As it stands, home affordability hit yet another  38-year low in September by way of spiking rates and prices, both of which could still serve to cool price gains as we move toward the end of the year.”

The same high interest rate environment continues to put downward pressure on mortgage origination activity, which remains overwhelmingly dominated by the purchase loans estimated to make up an 82% share of overall 2023 mortgage lending. Purchase lending is expected to continue to dominate the market through 2024, which should make it the primary focus for lenders. The October 2023 Mortgage Monitor finds that there is, however, modest opportunity in the refinance market, but it’s defying traditional analysis.

“Lenders hoping to engage with the constrained refinance market need to look beyond standard methods of identifying potential candidates,” Walden added. “In fact, with nine of 10 August 2023 refinances involving the borrower raising their interest rate – with an average rate increase of +2.34 percentage points – simple ‘in the money’ analytics are missing this market almost entirely. Granular insight into the before-and-after-refinance picture is key to understanding who is transacting in today’s rate environment – and more importantly, why.” The profile of cash-out borrowers – who made up roughly 90% of all Q2 refinances – has shifted considerably in recent quarters. While the average unpaid principal balance of borrowers entering a refinance has fallen from $319K in early 2020 to $183 K in August 2023, it is even lower ($165K) among cash-outs specifically. Alongside rising interest rates, the average equity withdrawal among cash-out refinances has also risen by nearly 90% from its low in 2020. Today’s candidates are far more focused on tapping equity, and cash-outs may make sense for borrowers with lower balances (on which they give up a lower rate) looking to withdraw larger amounts of equity (at lower interest rates than what is available via a HELOC). The average cash-out credit score of 715 – while still relatively strong – is down more than 40 points in less than three years and is among the lowest in the post-Great Financial Crisis era. Higher credit borrowers who can qualify in today’s market are more likely opting for HELOCs as a way of tapping equity, leaving a lower credit score residual among cash-out refis.

The Data & Analytics division of Black Knight manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

Black Knight’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.blackknightinc.com/data-reports/

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges – including the New York Stock Exchange – and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines and automates industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).” Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 – Statements in this press release regarding ICE’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE’s Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 2, 2023.

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