High interest rates hit housing affordability and buyer demand

The Intercontinental Exchange’s (NYSE:) November 2023 Mortgage Monitor Report highlights the significant strain on home affordability and buyer demand due to surging interest rates, which peaked at 7.80% in October. The report, compiled by ICE Mortgage Technology, underscores the increasing difficulties faced by homebuyers and borrowers as interest rates hit a 23-year high.

According to the data sourced from the ICE Home Price Index and Collateral Analytics’ real estate data, the principal and interest (P&I) payment for a median-priced home now requires nearly 41% of the median monthly income. This represents a historical high as this payment has risen by $144 over the past month, exceeding $2,500 per month. The price-to-income ratio, another key affordability indicator, stands nearly at 6-to-1 today, further pressuring consumers.

This spike in interest rates has led to a significant decrease in purchase mortgage applications, which were running 47% below pre-pandemic levels during the week of October 26th. Despite purchase lending remaining the primary focus for lenders, recent refinance activity has been primarily equity-driven cash-out transactions.

The report also reveals that the rate/term refinance market is virtually non-existent today, with pockets of cash-out lending occurring among a select group of borrowers. Homeowner equity has increased alongside home prices and is now within 2% of the peaks seen in 2022. U.S mortgage holders have approximately $16.4 trillion in equity in their homes, with $10.6 trillion being ‘tappable equity’.

However, borrower retention is at a 17-year low, indicating that lenders are losing customers who are seeking to tap into their equity via cash-outs due to an inability to identify and market to those likely to transact in today’s market.

The report further indicates that tight inventory levels have pushed prices to an all-time high in September with an annual growth rate of 4.3%. However, rates have increased by 75 basis points since September’s closed sales went under contract, reducing consumer buying power by another 8%. Given these factors, home prices are projected to weaken later in 2023.

InvestingPro Insights

The Intercontinental Exchange (ICE) has shown resilience amidst these market conditions, with InvestingPro data highlighting a market cap of $61.77B and a revenue growth of 2.59% over the last twelve months as of Q3 2023. The company has also maintained a consistent dividend growth, increasing by 10.53% in the same period.

InvestingPro Tips shed light on the company’s financial health and future prospects. ICE has not only raised its dividend for 11 consecutive years but has also been profitable over the last twelve months. Despite a declining trend in earnings per share, net income is expected to grow this year, indicating potential future profitability.

For those interested in further insights, InvestingPro offers a total of six additional tips related to ICE. These tips, along with real-time metrics, can provide a comprehensive understanding of the company’s performance and outlook.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.