U.S. homes are, on average, more affordable today than they were during the late 1990s and early 2000s, according to a report from Black Knight.
Nationally, it requires 21.4% of the median income to purchase the median-priced home as of September, compared with 24.2% from 1995-1999 and 26.2% from 2000-2003, the software, data and analytics firm says in its most recent Mortgage Monitor report.
“Rising home prices continue to offset the majority of would-be savings from recent interest rate declines, which has kept home affordability near a post-recession low,” says Ben Graboske, executive vice president, data and analytics, at Black Knight. “That being said, when viewing the market through a longer-term lens, affordability across most of the country still remains favorable to long-term benchmarks.”
As the report points out, interest rates have pulled back by 40 basis points over the past six months, but most of that potential savings continues to be offset by accelerating rates of home price appreciation across most of the country.
“In looking at the affordability landscape across the country, we certainly see varying levels of affordability in each market compared to their own long-term benchmarks,” Graboske says. “But, by and large, the overall theme is that affordability in most areas, while tightening, remains favorable to long-term norms.”
When looking at state-level data, payment-to-income ratios in 47 of 50 states remain below their 1995-2003 averages. Only Hawaii, California, Oregon, and Washington, D.C., have higher payment-to-income ratios today than their longer-term benchmarks.
Affordability, however, is being threatened by rising home prices – not to mention the possibility of rising interest rates.
According to the report, under optimistic scenarios, most states remain below long-term benchmarks even with home prices rising at current rates for another year.
However, under pessimistic scenarios – including significant increases in the 30-year fixed interest rates – affordability could surpass long-term norms in a number of states by this time next year.
It’s unclear from the report whether Black Knight looked beyond median income at other economic factors potentially impacting affordability – for example, general cost-of-living increases, such as health insurance.
Not to mention a major additional “utility bill” that did not exist for most Americans in 1995-2003: The cell phone bill.