Mortgage affordability improves in August, driving the refi incentive: ICE
Falling mortgage rates in August provided some relief for American homebuyers and made it the most affordable month since February.
Of the 2.5 million “in-the-money” mortgage holders on August 22, more than 60% have taken out their mortgage in the past two years, including 850,000 in 2023 and 560,000 this year. The average highly qualified candidate who took out a mortgage in the past two years could save $264 per month by refinancing at today’s interest rates, according to the latest insights. Mortgage Monitor Report released on Wednesday by Intercontinental exchange (ICE).
Although demand for mortgages for sale has recently had some of its best weeks since mid-March, the increase was muted compared to early 2023 and 2024, when rates fell to similar levels.
“When it comes to affordability, as always, context matters: it still takes 10 percentage points more of the median income to buy the average home than has been the case on average over the past thirty years,” says Andy Walden, vice president of research and research. analysis at ICE, the report said.
“Our proprietary ICE Market Trends data shows that potential homebuyers are also facing record high down payment and credit scores on recent purchase mortgages,” he added. “Affordability is still a major challenge and is likely to remain so for the foreseeable future, but the improvement in August is certainly welcome progress.”
The average down payment on mortgage purchases reached a record $91,600 in July, compared to $84,300 at the same time last year, ICE reported. This figure is up from $51,100 in July 2019, before the post-pandemic surge in home prices.
With mortgage rates falling below 6.5% in the first week of August, the number of highly qualified refinancing candidates has more than doubled from just a few weeks earlier.
As of August 22, approximately 2.5 million borrowers had qualified for refinancing. Of this group, 900,000 were considered highly qualified, meaning they had at least 20% equity in their homes, had a credit score of at least 720, and could save at least 75 basis points through a refinance.
These borrowers were quick to respond to the drop in interest rates. They pushed refinancing-related interest rates to the highest level in more than two years, up about 150% in a two-week period.
Interest and term refis accounted for roughly half of refi activity, as interest rates declined while disbursement activity increased only marginally.
Growing inventories and persistently weak demand caused home prices to cool further in July, ICE reported, pushing the annual appreciation rate down to 3.6% in July, down from 4.1% in June.
On a seasonally adjusted basis, prices rose 0.19% from June to July, equivalent to a seasonally adjusted annual rate of 2.3%. ICE points to a possible further slowdown in the annual growth rate in the coming months.
If the current pace of seasonally adjusted gains were to continue, it would cause annual house price growth to cool to a range of 3% to 3.5% in the coming months. Growth is likely to see a modest tailwind in the fourth quarter due to weaker data from late 2023.
“That said, purchase applications and rate freezes will be worth keeping a close eye on in the coming weeks to see how borrowers respond to the modest improvement in rates and housing affordability we’ve seen in recent weeks,” the report said.
