Increased Buying Power Puts Pressure on Home Prices


The December 2019 Mortgage Monitor Report from Black Knight Inc. suggests that low interest rates in late 2019 helped accelerate home-price growth while also improving affordability for home buyers.

In fact, December represented the fourth consecutive month of acceleration in the annual rate of growth and the largest single-month acceleration in almost seven years. After falling from nearly 7% in early 2018 to 3.8% in August 2019, the national home price growth rate gained nearly a full percentage point increase over the last four months of 2019, climbing to 4.7% to close out the year.

“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,” says Ben Graboske president of Black Knight’s Data & Analytics division.

“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,” he adds.

In terms of affordability, low interest rates in the second half of 2018 balanced out an average home-price increase of about $13,000 versus a year ago, making home purchases less expensive. In fact, the monthly mortgage payment required to buy the same home in December 2019 versus December 2018 dropped by 10%. 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 Black Knight has reported in two years.

“Put another way, prospective home buyers can now purchase a home that is $48,000 more expensive than a year ago while still paying the same in principal and interest,” Graboske explains. “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.”

The Mortgage Monitor also looks at the refinancing environment, reporting that there are now 9.4 million 30-year-mortgage holders in good standing who have at least 20% equity in their homes, credit scores of 720 or higher and who could cut their current interest rate by at least 0.75% by refinancing. This is the largest the population has been since mid-October 2019, when interest rates briefly fell below 3.6%.

On average, these borrowers could save $264 per month, for an aggregate monthly savings of nearly $2.5 billion. While down slightly from the $2.6 billion aggregate potential savings in August and September of 2019, it is three times the volume of savings available at the beginning of last year.

To read more from the Mortgage Monitor, click here.

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