A Potentially Important Shift In Income Demographics for Home Loans

(This is an excerpt from an article I originally published on Seeking Alpha on September 29, 2014. Click here to read the entire piece.)

I have written before that home builders have focused on building for higher income buyers and mortgage financing has been restricted to the well-off. It turns out things are not quite as bad as I thought.

Last week, the U.S. Federal Reserve posted a pre-release of an article for its Bulletin called “The 2013 Home Mortgage Disclosure Act Data” (HDMA). Here is the Fed’s description of the HMDA:

{snip}


Distribution of home loans across demographic groups, by income level (2004–13)
Distribution of home loans across demographic groups, by income level (2004–13)

Source of data: U.S. Federal Reserve

The different colors in the stacked bars represent income levels defined as follows: “Low- or moderate-income borrowers have income that is less than 80 percent of estimated contemporaneous area median family income (AMFI), middle-income borrowers have income that is at least 80 percent and less than 120 percent of AMFI, and high-income borrowers have income that is at least 120 percent of AMFI.”

I placed the middle income demographic at the bottom of the bar because it has remained relatively steady over the ten years provided. {snip} Note that high income borrowers came back with a vengeance in 2013 as the median sales price of a U.S. home soared back to, and past, its pre-recession peak (note carefully that the chart below represents an aggregation across ALL homes sold):


Median Sales Price of Houses Sold for the United States
Median Sales Price of Houses Sold for the United States

Source: St. Louis Federal Reserve

{snip}


Number of home-purchase loans (2004-2013)
Number of home-purchase loans (2004-2013)

Source of data: U.S. Federal Reserve

The implications of the shift in income demographics for mortgages are difficult to determine with certainty without more detailed data. {snip}


Overall housing affordability at a post-recession low but remains much better than before the recession
Overall housing affordability at a post-recession low but remains much better than before the recession

Source: St. Louis Federal Reserve

Be careful out there!

Full disclosure: no positions

(This is an excerpt from an article I originally published on Seeking Alpha on September 29, 2014. Click here to read the entire piece.)

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