Housing Collapse Coming Right Up

Mortgage rates are high and rising. Refinancing opportunities are nonexistent; home affordability has collapsed.

The latest Black Knight Mortgage Monitor is worth a very close look.

Here's what the report says about the feature chart.

  1. Recent rate jumps coupled with climbing home prices have increased the cost to purchase the median home by $67/month (+6 percent) over the past six weeks.
  2. Overall, it costs $1,141 in monthly principal and interest to purchase the median home using a 30-year fixed mortgage with 20 percent down, the largest monthly payment required since late 2008.
  3. It currently takes 23 percent of the median income to purchase the median home, the highest share since 2009.
  4. However, overall affordability remains better than long-term historical averages, even taking the recent rate jump into consideration. Purchasing the median home requires one percent less of the median income than 1995-1999, three percent less than 2000-2003 (before the sharp run-up in home prices) and two percent below those combined benchmarks (1995- 2003).
  5. Average incomes are more than 20 percent higher today than in 2006 (according to the Census Bureau) and interest rates 2.3 percent lower. As such, affordability remains much better than at the pre-recession peak, even though today’s home prices have surpassed 2006 levels.
  6. Assuming all else remains equal, to return to 2006 affordability levels, interest rates would have to climb north of 8.0 percent or the median home price increase to $420K.

Statistical Nonsense

Black Knight is correct on points 1-3. Statistically, it is correct on points 3-6. However ...

Regarding point 5: It's not average incomes that matter, it's median incomes.

Regarding points 4 and 6: Those who want a home and can afford a home have a home. The rest struggle because incomes have not kept up with home prices.

Notions of affordability are statistical nonsense. Black Knight does mention some of these issues in relation to other charts.

Home Price Appreciation by Tier

  1. Rising interest rates may put more pressure on borrowers with below average incomes buying below average priced homes.
  2. Affordability is lower in those segments compared to long-term benchmarks, and rising interest rates put more strain on affordability.
  3. The annual rate of appreciation on Tier 1 properties (lowest 20 percent by price) is 1.9 percent higher than the overall market average.
  4. Although the margin has declined in recent months, as of December 2017, the Tier 1 annual rate of appreciation was 75 percent higher than that of Tier 5 (a difference of 3.6 percent).
  5. Tier 1 home prices have now been the fastest appreciating quintile nationally for 67 consecutive months. The same trend holds true in 45 of 50 states and 90 of the nation’s largest 100 metro areas.
  6. Larger overall increases in value among lower-priced homes is not just a recent trend, though; the same dynamic is observed when looking back over the past 15 years.


Black Knight is six for six on that analysis.

It gets worse.

Refinancing Opportunities

Wants vs Needs

Anyone seeking to refinance will discover the opportunities have essentially vanished.

Anyone needing to refinance to lower their payments is in outright trouble.

Refinance Woes

Affordability Silliness

Brush aside affordability silliness.

It's not the the average income that matters. Not even the median income matters.

It is the median income of those looking to buy a home that matters!

On that there are no stats. But take another look at the lowest tier home price appreciation charts.

Compare tier one housing prices to real median wages, down seven of the last 11 years as noted in How the Fed's Inflation Policies Crucify Workers in Pictures.

Next, factor in millennial attitudes towards debt coupled with their desire to remain mobile, and you know where housing is going based on this data.

Expect a Housing Collapse

The more hikes the Fed gets in, the bigger the collapse and the bigger the resultant deflation.

Mike "Mish" Shedlock

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Posted a diatribe on house prices a few minutes ago, but it disappeared before it got posted on this buggy web site board.


The situation here isn't so much "Bubbles, bubbles, everywhere, bubbles," as it is the dollar has been trashed to the point anyone with any savvy at all is losing confidence in it, and is taking steps to protect their financial position.


I grew up in a home where my father was a architect/builder and my mother managed government housing for private property entities. My life experiences growing up in the 70’s and 80’s were boom and bust. Probably the only other industry outside of housing that has bigger boom and bust is oil.

My two cents on the state of housing? There are cost issues in certain parts of the country, especial on the coasts. But in general, housing affordability is still below the historical average, even taking in the recent rate hikes. Housing is more stable now than it has been since 2000. There are more healthy housing markets than there are distressed markets but the press needs something sensational to generate clicks.

What I do see as an issue is the mix of housing inventory. The total housing inventory can be greater but the mix of houses is all out of whack. We have a huge shortage of affordable homes for first time buyers while there is a glut of McMansions. Builders survived the 2008 recession by selling to the only people who where little affected by the downturn, the top 20% of income earners. Builders had to find customers to stay in business and the upper 20% were the only folks with credit or cash…and ability to move. As for existing homes that have been built on the last 20 years, many of those do not make for good starter homes either. The vast majority of homes built in the last 20 years were move up homes for the Baby Boomers. With such a shortage of true first time homes, 1200-1700sqft, the demand for affordable first time homes is crazy. My wife and daughter sell real estate and they have story after story of first time home buyers having to compete against 10 or more bidders. Folks, this is in Central Ohio, not southern California or Florida! A shortage of inventory and crazy bidding is why you are seeing the Tier 1 group lose out on affordability.

From my view in Central Ohio, I don’t see a housing crash anytime soon. Hopefully builders will see the opportunity and help ease the glut of demand for first time home buyers. Time will tell.


Home prices are unaffordable? Yet they keep going up because, well, no one is buying them? In many markets, monthly mortgage payments on a house are equal to, or at least close to, the cost of renting. Unless one believes the cost of land, building materials, labor and permit fees are going to fall, along with rents (Ha!), it only makes good sense to lock in housing costs for the long term, by purchasing rather than throwing away monthly rent checks for 20-30 years, or more. Bought my first house back in the early 80's when mortgage interest was 12%. The payment took half my income. Over the years, rents and incomes rose but that mortgage payment stayed the same. Then came the day it was paid off, and the renters next door were paying more than triple that last mortgage payment in rent. Today that house is worth $690k, but I'm not sure what that next door renter's pile of rent receipts is worth. Buy, hey, keep hoping the DOW will go back to 1000 and a house in Silicon Valley will drop back to it's 1975 $30k price. Even then some will probably still be bitching that houses are unaffordable. And they might be right, if wages also drop to 1975 levels.