It is the fourth consecutive month of peaking new home prices
Black Knight has released the Intercontinental Exchange (ICE) Mortgage Monitor Report for October 2023. The report leverages the ICE Home Price Index, which was formerly called the Black Knight HPI, to assess the current state of annual home price appreciation (HPA).
Home prices in August
Andy Walden, ICE’s vice president of enterprise research, stated that year-over-year home price growth has increased in recent months after flattening earlier in the year - August continued the trend of home price increases.
“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,” he said.
This increase was widespread as the prices seen within half of the 50 largest markets in the country rose by 0.75% or more. The 0.24% gain that August saw was more than 60% larger than the 25-year average. Because of this increase, annual appreciation also increased to 3.8%, which was stronger than initially expected.
“This marks three months of clear acceleration in the rate of growth at a national level, with annual HPA up from +2.4% in July and just +0.25% back in May,” explained Walden.
He stated that August was the second consecutive month in which the annual HPA trended higher within the 50 largest US markets - mirroring the reacceleration seen at national level. Walden also noted that if the 0.64% increase per month continues, annual growth could increase to almost 8% year-over-year by December.
However, such scenarios are not guaranteed as Walden noted that spiking rates may still cool price gains as the end of the year nears.
Cash-out refinance market defies traditional analysis
Purchase loans continued to dominate mortgage origination activity. This form of lending is expected to continue its domination through 2024, making it a primary focus for lenders. However, the refinance market is set to defy traditional analysis.
“Lenders hoping to engage with the constrained refinance market need to look beyond standard methods of identifying potential candidates,” said Walden.
“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,” he continued.
The profile of cash-out borrowers has significantly changed in recent years. Cash-outs are now being undertaken by borrowers with lower balances (averaging $165k) looking to withdraw larger amounts of equity at lower rates than that being offered by home equity lines of credit (HELOCs).
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