New Mortgage Monitor Report: Sellers “Pull Back,” Will Rate Cuts Change That?

0:00Property insurance is taking a bigger bite of the mortgage bill. Right now, nearly one in every$10 paid by the average mortgage holder goes towards insurance. And costs have climbed more than 11 % in just the last year. What does that mean for affordability? Where are costs in the housing market rising fastest? And how should buyers, sellers, and investors respond right now?

0:28I'm Dave Meyer, joined by Andy Walden from ICE Mortgage Technology. And today we're diving into everything going on with the housing market. We're going to unpack their latest mortgage monitor. We'll cover insurance trends, price movements, inventory, loan performance, and more. This is On the Market. Let's get into it. Andy, welcome back to On the Market. Thanks for being here. You bet. I appreciate you having me again. Well, before we start, I just want to say thank you to you and your team. The Mortgage Monitor is such an awesome piece of content that you all put out. If you are a nerd like me, which I imagine you are because you listen to this show, you should really check this out.

1:07There's so much good data in here and it's very accessible. I think that's the thing you all do really well is put into great visualizations that anyone can understand. You don't need to dive through Excel. This is a really cool document. But for people who haven't read it, we're going to go deep into all the information that Andy and his team have put together. Let's start, Andy, just with high-level overview of the housing market. Every forecaster, every company sort of has a slightly different view of what's happening with prices and volume in the country. What is the ICE data telling you? It's an interesting time in the housing market right now, right?

1:46So our latest home price index shows annual home price growth kind of holding stable from July to August at about plus 1.1 % year over year. We had been seeing this sharp deceleration out there in the market. August provided a little bit of flattening. And in fact, when you look at it on a seasonally adjusted basis from July to August, we saw just a modest uptick. So it's a very soft housing market right now, I think is kind of the way that I would bluntly put it. right? But you are seeing these little signs of another inflection out there. And a couple of those are, you've started to see sellers take a step back from the market.

2:22You've seen that inventory building that had been going on for the better part of the last year. You've really started to see that flatten out over the last couple of months, seeing interest rates come down, affordability improve a little bit. And so a little bit of firmness being put behind what had been a very soft housing market for the better part of this year. Yeah, we're going to dig into that, you just mentioned a couple of things I really want to make sure everyone here understands. But when you said 1.1 % year over year, is that nominal prices or are those adjusted for inflation? Not adjusted for inflation.

2:53That's just nominal home price growth up 1.1 % from the same time last year. So that's pretty soft. We've seen that level. We saw it for a couple of months there, 2022, 2023, right after mortgage rates got up above 6 % for the first time and you saw the housing market cooled off, we were right around in that range. But prior to that, we haven't seen those levels of home price growth since 2012. So a very soft dynamic compared to what we've seen over the better part of the last decade out there in the market. And it's important that everyone in the audience listening here understands the context here because yeah, 1.1 % up sounds great and it is better than things being negative.

3:30But if you do adjust that for inflation, it's what you would call probably negative real price growth. It is not growing. It is not keeping up with inflation. And as investors, that is sort of one of the key parts of real estate investing that you want to have. And these things do happen. It's not like some emergency, but I think that's sort of like an important threshold that we've crossed is that home prices are not keeping up with inflation anymore. Now, it has been softening. This trend has been going on for what, two years now we've sort of like, you know, we have these crazy numbers, then it went back to normal numbers.

4:07Now we're a little bit soft. The prevailing media narrative that we hear is that inventory is going up and like a lot of people are pointing to and say, oh, this is a crash. But you said sort of the opposite, that that's sort of cooling off. And in my perspective, tell me if you think differently, like the fact that sellers are sort of starting to step back in this market is a sign that this is a normal correction, right? Isn't this what you would expect to happen. Yeah. And honestly, we saw a similar scenario play out as I was mentioning a second ago, back in 2022, 2023, we moved into a very soft price dynamic back then as well.

4:44What's somewhat unique about the market today is sellers still have a stranglehold, for lack of a better word, on the market, right? And every time we've seen home prices soften up, sellers have kind of stepped back, right? There's not enough distress in the market from a mortgage performance standpoint, a foreclosure standpoint, to really have sale activity outside of your traditional homeowners that would provide that volume or that willingness to accept lower prices. And so, I mean, that's not to say that we can't see home price softening, because I think there certainly is that potential. But you certainly have kind of this firmness from sellers that's kind of quietly saying, hey, if I can't get the price that I want, I'm either not going to list or I'm going to pull my home off of the market.

5:25It's controlling that supply. So even in areas like Florida and Texas, and we saw some of that softening move out west, right? I live in Denver. We had seen inventory grow to twice its normal levels here. We had really started to see prices soften up. And then really since from May forward to today, we've seen that seller step back there. You've seen those surpluses start to pull back towards a little bit more normal levels. And you've seen things firm up a little bit, right? They're still down, but much firmer. And so it is controlling prices to some degree out there in the market. It's something we talk about a lot on the show.

6:00And I want to just reiterate here is that sort of the difference between a normal correction, which I would sort of think venture a guess that we're in or entering or something, you know, we're somewhere near a correction right now. And a full blown crash is this element of forced selling where people who don't want to sell are forced to because they are unable to make their mortgage payments. And as Andy said, and we'll dig into a little bit here, that part hasn't materialized. And that means that most people, you know, for a lot of Americans, their primary residence is where they hold most of their wealth.

6:36Maybe they want to sell, but they're just not willing to accept a lower number than they have in their head. And they're willing to just keep living in that house until they can get that number. Or maybe they'll just live there indefinitely. And that's sort of why we're seeing what is more of a normal correction, because no one's forcing these people to take a 10 % haircut on their homes. And they're probably not going to voluntarily do that. Yeah, I think you can look at it both from the supply side and the demand side, right? Supply side, yeah, you're looking for that inventory coming out of the market, whether it's foreclosure or short sale or distress sale.

7:06It's coming outside of your traditional home sellers that have that lack of willingness, for lack of a better word. The other area that I would look at is the demand side of the house as well. We have consistently seen demand move along with interest rates, right? So anytime we've gotten these reprieves in interest rates, like we've seen over the last couple of weeks, you'll see a corresponding response in demand. That is the sign of a pretty traditional and healthy market as well. where you would start to look for concern is if you start to see the labor market soften and interest rates soften along with that and demand doesn't return, that would be a sign of something new and different and maybe more concerning as well.

7:46We have not seen that, right? So over the last couple of weeks, part of the reason that we've seen interest rates come down is the labor market soften. There's increased expectation that the Fed is going to cut here in coming months. It's brought mortgage interest rates down. But as those rates have come down, the labor market hasn't been so soft that it hasn't brought demand back. So again, we're still in that, you know, I think you quoted it as kind of a normal market environment. I think that's a fair categorization. If we saw things play out like that, rates came down and buyers didn't respond, again, I would be a little bit more concerned about what's going on out there in the market.

8:18That's a very good point and something we should all keep an eye out for. The other thing I, you know, you hear though, is a lot of folks are saying that whether it's due to a recession, a weakening labor market due to new people in the Fed, that we might see rates get pushed down significantly over the next year. And I'm saying that appreciation might accelerate in that environment. What do you make of that theory? We've seen some of that over the last couple of years as rates have come down. It's kind of been 6.5 % has kind of been that barometer for mortgage rates, where when we've gotten below that 6.5 % range, it's firmed up prices.

9:00The difference now is we, I mean, we talked about some of the pullback in supply out there. We still have a lot more supply than we did a couple of years ago when we were in this situation. We were at a 40 % deficit versus normal levels then. We're closer to a 13, 14 % deficit right now. So a little bit more supply out there in the market. But I think that's a fair point, right? If interest rates come down a little bit, you could see that firmness return to the market. And I think there's already some signs of that over the last couple of weeks of, you response certainly from a refinance perspective to rates coming down.

9:34Same thing on the demand side. If you look at some of the application numbers that came from the NBA last week, they signal buyers returning to the market, which would suggest a little bit more firmness in home prices. Will it lead to a significant reacceleration in home price growth out there? We'll see, right? We'll see how long rates stay where they're at right now. We'll see what happens on the supply side. And do we start to see that really backtrack, which could lead to some accelerating home prices or does it hold about where it's at right now? But I think it's fair if rates stay in the low sixes to expect a little bit more firmness in home prices than what we have been seeing.

10:08There's definitely a rush for refinance. I think I've gotten like three calls from banks today asking me if I wanted to refinance any of my mortgages because they've dropped like a quarter of a point or a half a point. But to me, one of the big lessons of the last four or five years is that supply responds to affordability as well. It's not just demand. And all these folks were calling for a crash when interest rates went up and it didn't materialize because even though demand did fall off, so did supply. People stopped listing in not directly proportionate ways, but like it also responded. And I think that when people say, oh, rates are going to go down and prices are going to go crazy, they're sort of forgetting that lesson that if we get more demand, all the folks that Andy just mentioned that are choosing not to sell their home might choose to sell their home.

11:01And so we might see an increase in demand, sure, but we also might see an increase in supply, which could still, as Andy said, lead to a firmer market, but might be a reason that we don't all of a sudden see these COVID situations come back. And I feel like a lot of people are assuming that there's going to be this situation like the COVID era happen again when that was a very once in a lifetime kind of thing. And expecting that to happen again is probably not the most likely scenario. Yeah, I mean, that was driven by interest rates in the two and a half, three percent range. We're still above six right now.

11:37So it is a night and day different environment from an inventory perspective. from a home affordability perspective, we are completely light years away from when we were or where we were then as well. Let's talk a little bit about some regional differences. I was looking at your report and saw that you live in Denver, like you just said. I invest in Denver. I used to live in Denver for a long time. I think it was the number one market for balance between sellers and buyers. Is that right? Yeah. Yeah. In terms of inventory surplus is number one. As I mentioned, there was twice as much inventory here as you traditionally would see just a few months ago.

12:19That's come back down to earth. You've seen 20 to 25 percent pullbacks in seasonally adjusted inventory in some of these markets that have been softer. But yeah, I mean, Denver is kind of a poster child for that. You've seen, we all know the Gulf coast of Florida, the Austin, Texas storylines that have been out there, they're playing out in a somewhat similar way right now. These are the areas that saw the largest balances, I guess, I would say, or surpluses of inventory in some of these cases. They've seen the largest home price pullbacks in recent months and correspondingly the strongest corrections, for lack of a better word, in terms of supply here over the last couple of months as well.

12:57So those areas where sellers are pulling back are those Floridas. They are those Texases. They're the Denvers. They're the parts of the West where we had seen inventory push really high. Those sellers are pulling back. So the softest markets are the areas where we've seen a little bit more firmness come out here over the last couple of months. When you look at the higher end of the market, which I think we all know this, but the Midwest and Northeast are areas where home prices have been firmer. You're actually seeing a little bit softer dynamic right now. You're seeing those prices come back to the middle as well.

13:26So it's kind of this odd phenomenon across the country where the high end is coming back to the middle, the low end is coming back to the middle, and it's all just kind of squishing into a little bit of a softer dynamic across the country right now. It makes sense. Yeah, it's sort of a continuation of what we've seen over the last couple of months. I was just thinking when you were saying that, that I'm sort of the perfect poster child for what's going on in Denver and what we were just talking about. I had a property, single family, that the tenants, sort of longtime tenants chose to leave. And I was thinking, oh, maybe I'll sell it.

13:55You know, this is like a decently performing asset, not my best. Maybe I'll sell it. And I just looked at that supply demand imbalance and I was like, nah, I'm good. I'll rent it out for another year. You know, like, so that's just a representation of no forced selling. No one's going to force me to sell. I'm probably not going to get the price that I want. It's probably going to sit on the market longer than I want. And I have the option to just rent it back out, make cashflow. It's great. I'm going to do that. I still have like a 3.75 % mortgage on that property. I guess you're one of those people that refighted at the bottom and you're making good cash flow on it.

14:26So yeah, there's a lot of that activity going on out there. Exactly. So I think that's a good example. So that's what's going on sort of broader in the housing market. Let's talk a little bit about mortgage performance because we were talking about how that really impacts how soft this market might get. We do have to take a quick break, though. We'll be right back. Investing in real estate has always been smart, but it hasn't always been simple. Now, it's both, thanks to the Fundrise Flagship Fund. The Fundrise Flagship Fund launched more than five years ago with a mission of delivering low-fee access to blue-chip private market real estate.

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18:13Welcome back to On the Market. I'm here with Andy Walden going over the ICE mortgage monitor for September. Before the break, we're talking about just what's going on with home prices and supply and demand dynamics. And we talked a little bit about mortgage performance and how that really impacts prices in the housing market and inventory. So Andy, tell us a little bit about what the data is showing for mortgage performance. Yeah, and I think it's somewhat similar to the housing market, we're seeing this softer but not overly concerning dynamic out there. Same thing is going on from a mortgage performance standpoint, you're starting to see delinquency rates gradually trend a little bit higher, especially among borrowers and FHA mortgages, which is where the risk is really concentrated in today's market.

18:54But delinquency rates remain very low from a historic perspective, right? We're still half a percentage point below where we were entering the COVID pandemic in early 2020 from a delinquency rate perspective. So not overly concerning there. And then when you kind of look at the health of mortgage holders and homeowners as a whole, we're sitting on a very high credit population, right? The average mortgage holder in the US has about a 750 credit score. Wow. We're sitting on properties that are 55 % equity, 45 % debt. So they're lightly leveraged out there in the market. And so, I mean, you kind of look across all of these various thresholds and performance characteristics and things are relatively good.

19:36Now, again, and you're starting to see delinquencies rise in that FHA group, there are some areas of legitimate concern, right? We're seeing labor soften. We're seeing student loan debt collection resume. We're seeing a shift in FHA loss mitigation guidelines later this year. So there are a lot of reasons to keep an eye on mortgage performance. But all in, we're trending higher, but off of very low levels and still pretty low historically. So for everyone listening, when you see those headlines that say foreclosures are up 30%, it's true. But look at the baseline. Look at where we are. You got to zoom out on this sort of data.

20:13And I think this is just a very important difference between what was going on last time we saw a correction. It's hard to believe, but really, you know, last time I saw significant softness in the housing market for an extended period of time was really the crash. I know in 2018, it got a little weak in 2022, but nothing super concerning. And so this is really sort of a big trend. One of the crazy things in your report, you have this very cool chart that shows non-current rates by vintage, which sounds fancy. But basically what it is is, you know, how many people are delinquent based on what year or what era they got their mortgage?

20:53And the mortgages that are delinquent in the highest amount, I'm sure I'm just shocked by this, are still mortgages that were originated before the crash, pre-2009. Is that right? It's true. And I mean, there's bias there, right? So when you look at loans that were taken out 15 plus years ago, the folks that were able to refinance out of those that qualified for a refinance have refinanced out of those. So you have a higher risk residual sitting there, but those were higher risk mortgages anyway, right? So, you know, it's kind of compounding what was already there. It would have been true a decade ago.

21:30It's still true now. It looks a little worse now because, you know, if you're still sitting in a 15-year-old mortgage, there's a reason that you're sitting there and haven't been able to refinance out. But the same storyline holds true is that credit risk being taken, the loans being given out over the last 15 years are much higher quality loans in general. than what we're giving out from 2000 through 2008. Yeah, it's such a telling chart. It's pretty amazing. It basically charts interest rates. But yeah, so just as an example, the delinquency, overall delinquency rate for people pre-2009, you're showing about 10 % as a counterpoint for 2020 or 2021.

22:13It's about 2%. So a very big difference, like a five to one difference based on vintage and interest rate. And there's all sorts of, as Andy accurately pointed out, there's all sorts of variables there. But I'm just shocked by that, that the delinquency rate is still being driven up by those owned loans. It for sure is. And I think on the other end of that spectrum, you mentioned those 2020 and 2021 vintage loans. You were just talking about an investment mortgage you took out at that point in time where you're able to refinance into a 2.5%, 3 % rate, those borrowers and those mortgages still make up one-third of all active loans in the U.S.

22:50right now. And they are performing very, very well because for investors, the cash flows are still strong. For existing mortgage holders that live in those homes, they're able to perform on them because they locked in very low monthly payments. So if you look at why are we seeing stress in auto debt and credit card debt and student loan debt and not seeing it among existing mortgage holders is because a third of the population is still locked into very low interest rates and they're performing on those loans. And so it's holding those overall delinquency rates down. I am curious when you look at those other delinquency rates, I don't know how much you and your team study those, but do you have any fear that that will spill over into other parts of the economy or into the mortgage market?

23:34It's certainly something we watch closely, right? The student loan debt has been the most recent example of that, where you have roughly 30 % of borrowers inside of these FHA loans that also carry student loan debt. So there's a lot of overlap between those different debt structures and what you see in the mortgage space. And so when we saw that resumption of student loan debt collection over the last few months, there were absolutely questions of how is this and is this going to impact folks' ability to make their mortgage payments. So far, it's been relatively light. Now, people that are past due on their student loan payments, if you overlay those particular borrowers and look at their mortgage performance, you're absolutely seeing an impact there.

24:14But for folks that just have student loan debt that they're paying on or don't have student loan debt, those two subcategories are kind of trending along with each other so far this year. Folks that have student loan debt are earlier in their life cycle, and so they're more likely to be delinquent on their mortgage anyway, but not a massive uptick in that particular category. But absolutely something that we watch, right? And when you see stress in all these other categories, you know, we've got some data sets that overlay all that data on top of mortgage data. And so we're kind of parsing that apart and looking for additional signs of weakness or early signs of weakness in that mortgage space.