“Due to rising rates, some 6.5 million homeowners that previously could have benefited from refinancing their mortgages have missed that opportunity,” says Ben Graboske, executive vice president of Black Knight’s data and analytics division, in the firm’s most recent Mortgage Monitor report.
The recent rate increases have cut the “refinanceable” population by more than half from where it was at the start of 2018, the report shows.
“On average, these homeowners had a 22-month window to refinance,” Graboske explains in the report. “All told, that amounts to an aggregate of $1.5 billion in lost savings every month for these borrowers.
“This year alone, 2.2 million borrowers had the opportunity to see a 0.75 percent reduction on their first mortgage rates but did not take advantage of the reduced rates before increases to the 30-year fixed rate removed their incentive,” Graboske says. “So far in 2018, the average 30-year fixed mortgage rate is up 0.85 percent – with 0.35 percent of that rise coming over the last two months after remaining flat for much of the summer. The result is that the refinanceable population has been cut by 56 percent since the start of the year.”
Rising interest rates continue to put pressure on home affordability as well, with the monthly principal and interest payment on the average-priced home rising 18%, Black Knight reports.
At the national level, it now takes 23.6% of median income to make the monthly payment on the average-priced home, as compared to the longterm benchmark (1995-2003) of 25.1%.
Graboske says although affordability is still below the longterm benchmark, rising rates mean that soon could change.
“While still better than the 1995-2003 average of 25.1 percent, we’re close to a tipping point,” he says. “At the start of 2018, just two states – California and Hawaii – were less affordable than their long-term norms. As of today, 10 states have passed those benchmarks and another six are within 1.0 percent of long-term affordability levels.”
“Even if home prices were to lock in place where they are today and not rise another dollar, it would take less than a half a percentage point rise in interest rates to make homes less affordable at the national level than long-term norms,” he adds.
However, if home price appreciation continues to slow, it could help with the affordability situation.
“Prices were up just 0.05 percent in August, roughly one-third of the 25-year average for the month, and early indicators point to a slight decline in September,” Graboske says. “That would be the first pullback in home prices in 21 months and only the second since 2015.”
“We’ll be watching the data closely to see whether this second wave of interest rate rises enhances the slowdown we’re currently seeing in home price growth across the country.”
