Slides · Methodology

The American Enterprise Institute’s Housing Center released its monthly update to the AEI Housing Market Indicators on March 1, 2021.

This month’s main takeaways includes:

• Driven by the lowest mortgage rates in history, counts for all loan purposes were at or near series’ highs in November 2020.
  • Compared to a year ago, no cash out refis are up 155 percent, and cash out refis are up 68 percent.
  • Agency purchase loan volume in November set a new series’ high for that month, bucking the usual seasonal decline. 2020 volume through November is up 15 percent compared to a year ago, and it is projected to remain elevated through the beginning of 2021.
• Preliminary national rate of Home Price Appreciation (HPA) for January 2021 was 12.1 percent. HPA has reached yet another peak since the boom, and is up from 6.8 percent in January 2020.
  • The Fed’s monetary punchbowl is fueling rampant home price appreciation.
  • As predicted during our July 2020 briefing, HPA has reached the low double digits gains in late 2020.
  • Home prices in the low tier have risen 44 percent faster than in the high tier with much greater volatility, which has a detrimental impact on many first-time home buyers.
  • According to John Burns Intrinsic Home Value Index, 61 percent of the largest metros are overvalued.
  • Starting with June 2020, months’ supply levels started to drop precipitously across all price tiers.
  • Low mortgage rates combined with about two months’ supply mean that HPA will remain strong over the coming months as also indicated by Optimal Blue data.
• For the first time, AEI Housing Center is able to track the GSE refinance value overstatement
  • Refinances tend to overstate the value of a property and fail to incorporate seasonal patterns and recent changes in home price appreciation.
  • Appraisal waivers seem to have a salutary effect on the overvaluations for the moment.
  • Fannie’s waiver model seems to be more conservative than Freddie’s.
  • GSEs and FHFA need to be alert of potential gaming for waivers, as waivers have a higher propensity to anchor to certain price points, and receive higher valuations than human appraisals at these anchor points.

The AEI Housing Market Indicators provide accurate and timely metrics for the housing market. These include Mortgage Risk/Leverage (with a particular focus on agency first-time buyer volume and risk), house prices and appreciation trends, housing sales (new and existing sales whether institutionally financed, cash, and other-financed), and inventory levels. Since the housing market is influenced by many different factors, all need to be considered together to better understand market trends.