The topic of income inequality is, as they
say, trending, and this has moved CoreLogic to look at the nature of incomes and
homeowners. In a recent article in the
company’s Housing Trends Blog, principal economist Kathryn Dobbyn talks about a
new CoreLogic Index and the questions it is designed to answer.
The index is based on the company’s
loan level database and measures monthly median incomes derived from
debt-to-income (DTI) ratios for households obtaining mortgages. Data, which was limited to fully documented,
owner-occupied, single-family originations, was used to create both an
inflation-adjusted and a non-inflation adjusted median income time series from
January 2000 to September 2014. An index
value of 100 equals the median borrower income for loans originated in 2000 for
Dobbyn said the index was designed to
answer questions that included:
have the incomes of homebuyers and homeowners changed over time?
the incomes of households participating in the U.S. mortgage market somehow
different from the entire universe of U.S. households?
were they impacted by The Great Recession?
are the incomes of homeowners recovering?
What she called interesting and
unsuspecting trends emerged from the time series. As can be seen from Figure 1, the income of
borrowers who are refinancing have a much more volatile profile than that of borrowers
taking out purchase mortgages. There
were sometimes 5 to 10 percent jumps in the median in only a few months and
these quick upward movements coincided with downturns in the average interest
rate of a 30-year fixed rate mortgage. This suggests that lower rates prompted “a
relatively greater number of high income, more financially savvy borrowers” to
Dobbyn noted that starting in 2006, the
height of the subprime boom, the rise in median income slowed somewhat. She concludes that the new subprime products
brought a larger share of lower income borrowers into the market while at the
same time higher income borrowers were dissuaded by increased interest
Even as the Great Recession came and
went and continuing into the first few years of the recovery, the median income
of borrowers who were refinancing continued to rise but then fell off at the
beginning of 2013. She attributes this
to the expansion of the Home Affordable Refinance Program (HARP) in late 2012. New guidelines broadened to program to
include borrowers with higher levels of negative equity and/or with private
mortgage insurance. This permitted
larger numbers of lower-income households to refinance.
While CoreLogic did not find median incomes
in the purchase mortgage market to be as volatile or to rise as quickly as
among refinancers that median did grow by an “astonishing” 20 percent between
January 2000 and August 2005. This was at
the same time period the Census Bureau said median incomes nationally fell 2.7
percent. Then, as with refinancing, new subprime products brought lower income
borrowers into the purchase market and the median income leveled off and even declined
in 2005, 2006, and 2007.
In August 2008 the median purchase
income index began falling dramatically, dropping 19.8 percent from 149.1 to
120.1 in December 2009. This coincides
with the most dramatic events in the housing crisis but Dobbyn points out this decline
was not mirrored on the refinancing timeline nor in the country as a whole. The incomes of borrowers originating
refinance mortgages rose 9.1 percent and the Census Bureau puts the decline in U.S.
household incomes during the period at only 0.7 percent.
One of the most surprising findings of
the CoreLogic analysis was the degree to which tight credit shut high income
borrowers out of the market. Dobbyn
notes that the purchase index was fairly stable from 2009 until March 2012 when
it began a surge that carried it upward by 42 percent, from 120.1 to 170.1 in
September 2014. This was a time when
median household incomes nationally barely moved.
One would have expected, she says, that
during the recession and the early period of recovery the index would have
risen as tighter credit should have produced buyers with higher FICO scores and
presumably higher income. Instead, those
buyers were hit by the virtual disappearance of jumbo mortgage lenders. Those originations dropped from a 3.91
percent share in 2007 to 1.32 percent in 2008 and 0.4 percent in 2009 having
what she calls a huge impact on both the mortgage and high end sales
markets. The median income index for
purchases declined during that period by 19.8 percent and sales of million
dollar homes fell from a 2.1 percent share in July 2007 to 1.0 percent of all
homes sold in April 2009.
In Mid-2012 the jumbo market began to
revive and both the median purchase index and the share of upper-end homes took
off. Dobbyn says the dramatic surge in
the median purchase income index over the last two years reflects the pent-up
demand among high-income borrowers for more expensive homes. It also shows, she says, the impact of opening
the credit box and releasing this demand for even a small segment of the market. It is now time, she concludes, to open the
credit box to the other side of the income distribution “as responsibly
providing access to financing through new underwriting standards, loan programs
and policies will help ease the pent-up demand for a larger segment of U.S.
households and help boost home sales more broadly, aiding to the nation’s