Black Knight: Falling Rates, Rising Home Prices Have Boosted Re-financeable Population

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Due to falling mortgage interest rates and rising home prices, about 9.4 million homeowners currently stand to gain from refinancing their mortgages, data from mortgage software firm Black Knight shows.

These are homeowners in good standing who have at least 20% equity in their homes and credit scores of 720 or higher, according to the firm’s most recent Mortgage Monitor report.

These homeowners could cut their current interest rate by at least 0.75%, saving an average of $264 per month, the firm’s research shows.

This “refinance-able population” is the largest it’s been since mid-October 2019, when mortgage interest rates briefly fell below 3.6%.

That other factor helping to drive-up the re-financeable population is rising home prices. According to Black Knight’s data, U.S. home prices increased by an average of 4.7% in 2019.

Most of the increase came in the second half of 2019 – driven by falling rates.

“After falling from nearly seven percent year-over-year appreciation in early 2018 to a trough of 3.8 percent in August 2019, the national home-price-growth rate gained a good deal of steam as mortgage interest rates declined throughout the second half of last year,” says Ben Graboske, president of the data and analytics division for Black Knight, in a statement. “In fact, December marked four consecutive months of home price growth acceleration and the largest single-month acceleration in more than 6.5 years, while the annual rate of appreciation saw nearly a full percentage point increase over the last four months of 2019, closing out the year at 4.7 percent.

“The low end of the market – those homes in the bottom 20 percent by price – saw 6.6 percent annual growth, nearly three times the rate of the top 20 percent,” Graboske adds. “That said, higher-priced homes have been more reactive to recent rate declines. The annual growth rate among the top price tier has more than tripled over the past four months – from 0.7 percent year-over-year in August to 2.3 percent as of the end of the year – while there’s been very little acceleration at the lowest end of the market.

“Still, even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018,” Graboske says. “At that time, the housing market was red-hot, with national home price growth at 6.6 percent and climbing – before rising rates and tightening affordability triggered a pullback in growth rates. That’s not the case today. Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10 percent over that same span due to falling interest rates.”

Graboske said it now requires 20.6% of median monthly income to purchase the same home as it did just over a year ago, “the smallest payment-to-income ratio we’ve seen in two years.”

“Put another way, prospective homebuyers can now purchase a home that is $48,000 more expensive than a year ago, while still paying the same in principal and interest,” he says. “That’s a 16 percent increase in buying power. Recent history at comparable levels of affordability suggest acceleration in home price growth may well continue in the coming months as this increased buying power puts upward pressure on home prices across the country.”

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