Falling mortgage rates helped boost home affordability in September, Black Knight’s Mortgage Monitor shows.
In November 2018, when rates were nearing 5%, the share of national median income required to make the principal and interest (P&I) payments on the purchase of an average-priced home was 23.7%.
In other words, the average wage earner in the U.S. had to devote 23.7% of his/her paycheck to afford an average priced home.
Fast-forward to the end of September 2019 – with the average 30-year interest rate at around 3.64% – and it now requires 20.7% of the national median income to make monthly P&I payments on an average-priced home.
That marks the second lowest national payment-to-income ratio in 20 months, behind only August, according to Black Knight.
“To help quantify the boost this has given to homebuyers, consider that today’s prevailing 30-year rate has cut the monthly P&I payment to purchase the average-priced home by 10 percent [since November 2018],” says Ben Graboske, president of the data and analytics division for Black Knight, in the report. “Put another way, the decline in rates … has been enough to boost buying power by $46,000 while keeping monthly P&I payments the same.”
As the report points out, interest rate movements are a key determining factor of housing affordability – and significant shifts in either direction can change the landscape quickly.
What’s more, shifts in home prices can also have a significant impact.
“Despite falling interest rates and steadily improving affordability over the preceding eight months, annual home price growth held flat in August at 3.8% after rising for the first time in 17 months in July,” Graboske says. “It remains to be seen if this is merely a lull in what could be a reheating housing market, or a sign that low interest rates and stronger affordability may not be enough to muster another meaningful rise in home price growth across the U.S.”