Examining County-Level Housing Affordability: An Analysis of Hyperlocal Factors, Q1-2024

dv01's latest county affordability research highlights correlations with housing activity (gauged through home sales) as an indication of whether affordability pressures create a more dynamic selling environment. More importantly, affordability is tied to actual mortgage performance (which investors care about) by analyzing correlations between affordability and long-term prepayment trends across conforming mortgages in the CRT universe.

Both of these updates are critical for investors to manage their existing portfolios and engage in future purchases. Prepayments (or lack thereof) have been the deciding factor in analyzing mortgages originated post-GFC, given that credit performance has been remarkably robust and overall delinquencies remain near record lows. However, the surge in mortgage rates and slowdown in prepay activity led to price declines across the RMBS universe, along with uncertainty over duration and future cash flows. As established in the correlations in dv01's report, the use of affordability metrics can generate significant alpha, mitigate risk, and help investors and issuers understand their geographic profile risks.