While the U.S. median sale price rose about 6 percent over the past year the principal-and-interest mortgage payment on that median-priced home increased nearly 9 percent. Moreover, the CoreLogic Home Price Index Forecast suggests U.S. home prices will be up 6.2 percent year-over-year in February 2019, while some mortgage rate forecasts translate into a 13 percent gain in the mortgage payments homebuyers will face.
One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the “typical mortgage payment.” It’s a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20 percent down payment. It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for in order to get a mortgage to buy the median-priced U.S. home.
A consensus forecast  suggests mortgage rates will rise by about 0.53 percentage points, or 53 “basis points,” between February 2018 and February 2019. The CoreLogic HPI Forecast suggests the median sale price will rise 4.5 percent in real terms over that same period (or 6.2 percent in nominal terms). Based on these projections, the inflation-adjusted typical mortgage payment would rise from $818 in February 2018 to $910 by February 2019, an 11.2 percent year-over-year gain (Figure 1). In nominal terms the typical mortgage payment’s year-over-year gain would be 13.0 percent.
An IHS Markit forecast calls for real disposable income to rise by around 3 percent over the next year, meaning homebuyers would see a larger chunk of their incomes devoted to mortgage payments.
When adjusted for inflation the typical mortgage payment puts homebuyers’ current costs in the proper historical context. Figure 2 shows that while the inflation-adjusted typical mortgage payment has trended higher in recent years, in February 2018 it remained 35.8 percent below the all-time peak of $1,274 in June 2006. That’s because the average mortgage rate back in June 2006 was about 6.7 percent, compared with an average rate of about 4.3 percent in February 2018, and the inflation-adjusted U.S. median sale price in June 2006 was $247,269 (or $199,900 in 2006 dollars), compared with a February 2018 median of $205,970.
 Based on the average mortgage rate forecast from Freddie Mac, Fannie Mae, Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders and IHS Markit.
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