Agency purchase loans became just a bit riskier in July 2015, climbing upward by 0.6 percentage points from the previous July and marking the seventh consecutive month with a year-over-year increase, according to data released by the American Enterprise Institute International Center on Housing Risk on Monday. The composite National Mortgage Risk Index for Agency purchase loans was at 12.09 percent in July, up from 11.49 percent in July 2014.
The upward trend of the composite NMRI has been largely driven by agency loan originations continuing to migrate from large banks to nonbanks, since nonbank lending is quote, substantially riskier, close quote, than large bank lending. Aside from the year-over-year hike in the composite index, home prices have increased by 12.5 percent above the trough reached three years ago, driven by increasing leverage in a seller's market. AEI says the home price increase is making it more difficult for many low- and middle-income consumers who are aspiring to become homeowners.
Freddie Mac's monthly Insight & Outlook report for August 2015 released Monday found that a substantial amount of human judgment is required in addition to statistics when determining if a housing market is overvalued or when home prices are likely to drop. The housing industry's affordability metrics can determine when home prices are high relative to historical norms and household income, but those metrics cannot reliably predict if or when home prices will drop either nationally or in a particular market.