AEI Housing Market Indicators, May 2023

Video Recording

Key Takeaways

• Purchase rate lock volume was down 40% from 2022 while median rates rose 1/8 ppt. to 6 5/8%.
  • February 2023 agency purchase loan volume, which is currently at 2015 levels, increased 20% from January, marking the largest Month-over-Month (MoM) change in February from 2013-2023.
• Year-over-Year (YoY) Home Price Appreciation (HPA) decline slowed down. Recent Month-over-Month (mom) increases are expected to continue. By May 2023, home prices are expected to exceed last year’s peak level.
  • April 2023’s YoY HPA was 1.4%, down from 2.6% a month ago and a significant drop from the YoY peak of 18.3% in March 2022.
  • Given historically low supply, cooling yet still strong job numbers, low foreclosures, work from home, and continued home price arbitrage opportunities, we continue to project a YoY HPA of 0% for December 2023.
  • Months’ remaining supply for April (not seasonally adjusted) was at 2.4 months. Housing inventory continued to run below pre-pandemic levels and remains at sellers’ market levels, which helps explain the recent Month-over-Month increases.
• An Analysis of New IRS Migration Data.
  • In tax year (TY) 2020, California, New York, and Illinois lost the most taxpayers (and their dependents) while Florida, Texas, and North Carolina attracted the most taxpayers (and their dependents).
  • Sneak peak of new Light-touch Density maps in Charlotte, NC and Palisades Park, NJ.
• Palisades Park is almost entirely zoned for 1-2 family units, while Leonia is almost entirely zoned for single-family.
  • Since 2000, Palisades Park has built over 1,000 1-4 unit structures (LTD) while Leonia has built less than 100. This has resulted in a win-win for Palisades Park – its post-2000 LTD units are lower-priced than Leonia’s newer SFD units (median $810k vs over $1 million respectively) and its own SFD housing stock ($940k).
• The latest trends in appraisal waivers.
  • The share of appraisal waivers for both GSEs combined for March 2023 stood at 13%, up 1% from last month but down 36 ppts. from its series’ peak in March 2021.
  • Freddie replaced appraisal waivers with ACE+PDR in July 2022, which requires onsite property information collection for no cash-out loans with LTV greater than 90% and all cash out loans. As a result, waiver share dropped to 7.0% for Freddie no cash-out loans and 0% for Freddie cash-out loans in February 2023.
• Trends in market fundamentals and how they compare to home price appreciation.
  • Since 2012, home price appreciation (HPA) has increased 2-3 times the rate of market fundamentals. While this is usually unsustainable over the long run, the current boom may be different.
  • Since 2020, the story has changed markedly. While home price appreciation (HPA) continues to outpace market fundamentals, the gaps with rents and construction cost have narrowed. These relationships, combined with tight supply, is helping fuel the recent uptick in Month-over-Month HPA, notwithstanding markedly higher interest rates.

If you would like to receive invitations to our monthly update calls, please subscribe here. For data on mortgage risk, please use our Mortgage Risk Index Interactive.