U.S. Homebuyers’ “Typical Mortgage Payment” Up 15 Percent Year Over Year – More Than Double the Median Sale Price’s Gain

Mortgage Rate Forecasts Suggest a 9 Percent Gain in Buyers’ Mortgage Payments by Next June

By Andrew LePage Housing Affordability, Real Estate

While the U.S. median sale price has risen by just over 6 percent over the past year the principal-and-interest mortgage payment on that median-priced home has increased more than 15 percent. Moreover, the CoreLogic Home Price Index Forecast suggests U.S. home prices will be up 4.7 percent year-over-year in June 2019, while some mortgage rate forecasts suggest the mortgage payments homebuyers will face at that point will have risen almost twice as much.

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 to get a mortgage to buy the median-priced U.S. home.

Mortgage Rates vs Year Over Year

The U.S. median sale price in June 2018 – $233,732 – was up 6.3 year over year, while the typical mortgage payment rose 15.1 percent because of a .67-percentage-point rise in mortgage rates over that one-year period.

A consensus forecast[1] suggests mortgage rates will rise by about 0.36 percentage points between June 2018 and June 2019. The CoreLogic HPI Forecast suggests the median sale price will rise 2.2 percent in real terms over that same period (or 4.7 percent in nominal terms). Based on these projections, the inflation-adjusted typical monthly mortgage payment would rise from $955 in June 2018 to $1,018 by June 2019, a 6.5 percent year-over-year gain (Figure 1). In nominal terms the typical mortgage payment’s year-over-year gain would be 9.2 percent.

National Homebuyers Typically Mortgage Payment

An IHS Markit forecast calls for real disposable income to rise by less than 3 percent over the next year, meaning homebuyers would see a larger chunk of their incomes devoted to mortgage payments.

When adjusted for inflation[2] 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 June 2018 it remained 25.3 percent below the all-time peak of $1,279 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 4.6 percent in June 2018, and the inflation-adjusted U.S. median sale price in June 2006 was $248,312 (or $199,750 in 2006 dollars), compared with a June 2018 median of $233,732.

[1] 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. 

[2] Inflation adjustments made with the U.S. Bureau of Labor Statistics Consumer Price Index (CPI), Urban Consumer – All Items.

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