Black Knight Inc.‘s September Mortgage Monitor Report examines the phenomenon of $2,000-$3,000 monthly mortgage payments, which have rapidly become the norm in today’s housing market as a result of spiking interest rates and historically high home prices. As Andy Walden, vice president of enterprise research for Black Knight, explains, this is a remarkably recent development.
“The average principal and interest payment among borrowers purchasing a home using a 30-year fixed-rate loan hit its highest point ever in July at $2,306, and that’s before taxes and insurance are factored in,” says Walden. “That’s up 60% over the past two years, which got us to thinking: When did the $2,000 monthly mortgage payment become the norm? Just two years ago, only 18% of homebuyers were facing that level of payment; as of the end of July that share had grown to 51%.
“Beyond that, almost one in four July homebuyers has payments north of $3,000, up from just 5% in 2021. We’ve been talking about affordability for quite some time now, but this puts the situation in stark relief.
“Rates aren’t just hampering prospective homebuyers though. While tappable equity levels have returned to near-record highs, rising rates are having a clear impact on how – and how much – equity mortgage holders are willing to withdraw from their homes,” says Walden. “From 2010-2021, mortgage holders pulled out just under 1% of available equity each quarter. But over the last three quarters, that share has fallen to 0.4%, which suggests rising rates have resulted in a roughly 55% decline in equity withdrawals. In essence, over the last 15 months, there’s been nearly $200B less equity withdrawn – and reinjected into the broader economy – than might otherwise have been, due in large part to elevated interest rates.”
Data on home equity lines of credit (HELOCs) suggests further headwinds. HELOC rates have risen along with aggressive Fed rate hikes, with the average HELOC offering now above 8.5% for the first time in the 15-plus years Black Knight has been tracking the data.
Such HELOC rate increases have left borrowers without an overly attractive option to tap into their equity and have led to weaker withdrawal volumes this spring and summer, with second-lien withdrawals down by a little over 30% from the same time last year. However, HELOCs still remain the more attractive of the two options for homeowners needing to access equity without sacrificing record-low first-lien rates.
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