Black Knight’s Mortgage Monitor: Tax Reform Could Further Constrict Already Tight Housing Inventory, While Increasing Net...
December 04 2017 - 9:00AM
Today, the Data & Analytics division of Black Knight, Inc.
(NYSE:BKI) released its latest Mortgage Monitor Report, based on
data as of the end of October 2017. Given the significant impact
proposed changes to the tax code could have on the housing and
mortgage markets, this month Black Knight explored the impact from
the Senate and House versions of tax reform as currently written.
As Black Knight Data & Analytics Executive Vice President Ben
Graboske explained, proposed changes to the standard deduction,
mortgage interest deduction (MID), and capital gains exemptions in
particular could put even more pressure on already limited
available housing inventory, with ramifications for both current
homeowners and prospective buyers.
“Both tax reform proposals double the standard tax deduction,
which may, in many cases, provide a greater benefit to renters than
to homeowners,” said Graboske. “It may also reduce the tax
incentive to purchase a home and generally make the MID less
valuable to borrowers. We’ve observed in the past that positive tax
incentives can certainly impact home buying decisions – the Black
Knight Home Price Index showed clear evidence of this as a result
of 2008’s first-time homebuyer tax credit. However, limited data is
available to examine the effects of removing an existing tax
incentive on borrowers’ purchase behavior. One thing that seems
clear is that a reduction of the MID could further constrain
available housing inventory, which itself has helped to push home
prices even higher in many places. Almost 3 million active
first-lien mortgages -- current mortgage holders -- have original
balances exceeding $500K -- the cap proposed in the House version
of the tax bill. These borrowers would be exempt from the limit.
We’ve already seen signs of ‘interest rate lock’ on the market, as
homeowners with low interest rate mortgages have a disincentive to
sell in a rising rate environment. The question now becomes whether
the proposed tax reform adds another layer of ‘tax deduction lock’
on the market. Do these homeowners now also have a disincentive to
sell their home in order to keep their current interest rate
deduction of up to $1 million? If so, this would potentially
add new supply constraints.
“Lower-priced markets may see little effects from these changes,
but the most recent Black Knight Home Price Index shows 22 markets
nationwide where the median home price is over $500K. Mortgage
originations at or above that point have increased by 350 percent
since the bottom of the housing market. At the current rate of
growth, we could see approximately 480,000 purchase originations in
2018 with original balances over $500K, with an estimated 2.9
million over the first five years of the tax plan. If home prices
continue to rise and the cap is left in place, more families in the
upper-middle income range could be impacted. Even if interest rates
stayed steady around four percent, a $500K MID cap could cost the
average homeowner with a larger mortgage an additional $2,600 -
$4,200 per year depending on their tax bracket, representing a 6 to
10 percent increase in housing-related expenses as compared to the
average annual principal and interest payment today.”
Black Knight also found that proposed changes to the capital
gains exemption on profits from the sale of a home (requiring five
years of continuous residence as compared to the current two) could
impact approximately 750,000 home sellers per year, also
potentially increasing pressure on available inventory. Leveraging
the company’s SiteX property records database, Black Knight found
that on average, over the past 24 months, more than 14 percent of
property sales were by homeowners falling into that
two-to-five-year window and who would no longer be exempt from
capital gains taxation. On average, $60 billion in capital gains
each year could be impacted, with a worst-case scenario (taxing the
full amount under the highest tax bracket) putting the cost to home
sellers at approximately $23 billion. If such homeowners choose to
forego or delay selling to avoid a tax liability, this may also
further reduce the supply of homes for sale.
As was reported in Black Knight’s most recent First Look
news release, other key results include:
Total U.S. loan
delinquency rate: |
4.44% |
Month-over-month change
in delinquency rate: |
0.94% |
Total U.S. foreclosure
pre-sale inventory rate: |
0.68% |
Month-over-month change
in foreclosure pre-sale inventory rate: |
-2.84% |
States with highest
percentage of non-current* loans: |
MS, FL, LA, AL, TX |
States with lowest
percentage of non-current* loans: |
MT, MN, OR, ND, CO |
States with highest
percentage of seriously delinquent** loans: |
MS, LA, AL, AR, FL |
*Non-current totals combine foreclosures and delinquencies as a
percent of active loans in that state. **Seriously delinquent loans
are those past-due 90 days or more.Totals are extrapolated based on
Black Knight’s loan-level database of mortgage assets.
About the Mortgage Monitor The Data &
Analytics division of Black Knight manages the nation's leading
repository of loan-level residential mortgage data and performance
information on the majority of the overall market, including tens
of millions of loans across the spectrum of credit products and
more than 160 million historical records. The company's research
experts carefully analyze this data to produce a summary
supplemented by dozens of charts and graphs that reflect trend and
point-in-time observations for the monthly Mortgage Monitor Report.
To review the full report, visit:
http://www.BKFS.com/CorporateInformation/NewsRoom/Pages/Mortgage-Monitor.aspx
About Black KnightBlack Knight
(NYSE:BKI) is a leading provider of integrated software, data and
analytics solutions that facilitate and automate many of the
business processes across the homeownership lifecycle.
Black Knight is committed to being a premier business
partner that clients rely on to achieve their strategic goals,
realize greater success and better serve their customers by
delivering best-in-class software, services and insights with a
relentless commitment to excellence, innovation, integrity and
leadership. For more information on Black Knight, please visit
http://www.blackknightinc.com/.
For more information:
Michelle Kersch904.854.5043michelle.kersch@bkfs.com
Mitch Cohen 646.926.7741 mitch@mprg.com
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