Follow Insights Blog

CoreLogic

CoreLogic Econ

LATEST CORELOGIC ECON TWEETS

How Have Homeowners’ Incomes Changed Over Time?

A Homeowner Income Index Shows Some Surprising Results

Kathryn Dobbyn    |    Mortgage Performance

Income inequality and wage stagnation have garnered greater attention in the backdrop of the continuing recovery from The Great Recession. These issues been addressed by the national news media, Notably economists and politicians, and at some length here at CoreLogic. It was during the course of one of these internal discussions that questions arose regarding the nature of incomes and homeowners. How have the incomes of homebuyers and homeowners changed over time? Are the incomes of households participating in the U.S. mortgage market somehow different from the entire universe of U.S. households? How were they impacted by The Great Recession? How are the incomes of homeowners recovering?

To answer these questions, we used the CoreLogic Loan Level Market Analytics dataset to create an index measuring monthly median incomes for households obtaining mortgages. Specifically, using the front-end debt-to-income (DTI) ratio1, we calculated incomes for a representative sample of mortgage originations. For the sake of clarity, our sample included only fully documented, owner-occupied, single-family originations. We calculated both an inflation-adjusted median income time series and a non-inflation-adjusted median income time series from January 2000 to September 2014, such that an index value of 100 would equal the median borrower income for loans originated throughout 2000 for each particular index2.

Once we had a monthly time series of median incomes, some interesting and unexpected trends began to emerge. For example, the median income for refinance originations tends to be more volatile than the median income for purchase originations, sometimes jumping by 5 percent or 10 percent in a matter of a few months (see Figure 1). These quick upward movements occur almost simultaneously with drops in the average 30-year fixed-rate mortgage- suggesting that during these periods a relatively greater number of high income, more financially savvy borrowers, were refinancing to take advantage of lower interest rates. At the height of the subprime boom, starting in 2006, the rise in median borrower income slowed somewhat as both new subprime products brought a larger share of lower-income households into the mortgage market and relatively higher interest rates kept higher income households out of the market. Incomes continued to rise for borrowers originating refinances throughout the Great Recession and into the first few years of the recovery. However, median incomes for borrowers began falling rapidly in the beginning of 2013 as the Home Affordable Refinance Program was expanded to include borrowers with negative equity and private mortgage insurance, allowing a larger number of lower-income borrowers to refinance.

In the purchase market, median borrower incomes did not rise as quickly or with the same volatility as the median income of households originating a refinance. However, the median income of those purchasing a home did grow by an astonishing 20 percent between January 2000 and August 2005. Comparatively, the median income of all households in the U.S. fell 2.7 percent over the same period according to the Census Bureau. Again, similar to median incomes on refinances, the impact of subprime lending in 2005, 2006 and 2007 reflected in the purchase index as new innovative products brought lower income households into the mortgage market. Surprisingly, 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 was a decline not mirrored by the incomes of borrowers originating refinance mortgages, which rose 9.1 percent over the same period, nor by U.S. household incomes which, according to the Census Bureau, fell by a mere 0.7 percent. The purchase index remained fairly stable until March 2012 when it surged from 120.1 to 170.1 in September 2014, a stunning 41.6 percent rise over a period where median household incomes barely rose.

Million Dollar Sales Share and Median Purchase Income Index

Million Dollar Sales Share and Median Purchase Income Index

This move is counter-intuitive as one’s initial assumption is that the tightening of credit during the Great Recession and the subsequent recovery would have produced many more borrowers with higher FICO scores that tend to have higher incomes. However, along with tighter credit came the (temporary) death of the jumbo mortgage and between 2007 and 2008 the purchase jumbo share of all originations dropped from 3.91 percent to 1.32 percent. By 2009, the jumbo share had fallen to a measly 0.4 percent3. As can be seen in Figure 2, this had a huge impact on both the mortgage and the high-end sales markets. Not only did the lack of jumbo originations cause the median income4 of households purchasing a home to decline by 19.8 percent, but the share of $1 million-plus homes sold moved in lockstep, falling from 2.1 percent of total sales in July 2007 to 1.0 percent in April 2009.

As the purchase jumbo market was beginning to show signs of life in mid-2012, the median purchase index and the share of $1 million-plus home sales began to increase as well. The pent-up demand for high-end homes can be seen on the heels of loosening credit when the supply of low-interest jumbo financing increased over 2013 and 2014, bringing back high net-worth borrowers to the mortgage market and, thereby, causing the dramatic surge in the median purchase income index over the past two years.

In a way, it’s a little strange to think that one of the outcomes of the credit crisis was the inability of high net-worth households to obtain credit to purchase homes. It is a little odd that those on the higher end of the income distribution were unable to obtain financing just as credit availability was evaporating for those households on lower-end FICO and income distributions. Further, now that high-income borrowers have renewed access to credit, it is easy to see the impact of easing pent-up demand for a small segment of the market. Providing credit to wealthy households seems like an easy first step to opening the credit box to more borrowers. Now it is time to turn 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 recovery.

  • [1] If the front-end DTI was missing, CoreLogic estimated the income using an adjusted back-end DTI.
  • [2] The inflation-adjusted series was calculated using the Consumer Price Index Research Series Using Current Methods from the Bureau of Labor Statistics (http://www.bls.gov/cpi/cpirsdc.htm)
  • [3] Source: CoreLogic Loan Level Market Analytics.
  • [4] The Index in Figure 2 is not adjusted for inflation for better comparison to the million-dollar-plus share of total sales.

© 2015 CoreLogic, Inc. All rights reserved.