As mortgage rates climbed last year, creating a headwind for home sales, the annual growth rate for the mortgage payments homebuyers faced increased at a significantly higher rate than home prices. Last November was an extreme example: The nation’s median sale price rose 4.3% year over year, but the principal-and-interest payment on that median-priced home – what we call the “typical mortgage payment” – shot up 17.4% because mortgage rates had climbed about one percentage point, hitting a seven-year high.
This year the combination of slower home price growth and lower mortgage rates has brought the annual growth rate for home prices and buyers’ mortgage payments more in line. Some rate and price forecasts suggest that the payments homebuyers will face the rest of this year will be up or down modestly compared with a year earlier (Figure 1), which could help stoke sales.
The U.S. median sale price in February 2019 – $218,106 – was up 3.9% year over year, while the typical mortgage payment was up 4.7% because of a roughly 0.1-percentage-point rise in mortgage rates over that one-year period. The typical mortgage payment’s 4.7% annual gain this February was down from an average gain of 13% over the prior 12 months.
Looking ahead, the CoreLogic Home Price Index (HPI) and HPI Forecast suggest annual gains in home prices each month from this March through next February will average 4.2%. The average among six rate forecasts indicates a small increase – roughly 0.1 percentage points – in mortgage rates next February compared with February 2019.
The CoreLogic HPI Forecast suggests the median sale price will rise 2.6% in real, or inflation-adjusted, terms over the year ending February 2020 (or 5.4% in nominal, or not-inflation-adjusted, terms). Based on that projection, coupled with the aforementioned consensus mortgage rate forecast, the real typical monthly mortgage payment would rise from $871 in February 2019 to $902 by February 2020, a 3.6% year-over-year gain. In nominal terms the typical mortgage payment’s year-over-year increase in February 2020 would be 6.4%.
When adjusted for inflation the typical mortgage payment puts homebuyers’ current costs in the proper historical context. Figure 2 shows that while the real typical mortgage payment has trended higher in recent years, in February 2019 it remained 31.7% below the all-time peak of $1,276 in June 2006. That’s because the average mortgage rate back in June 2006 was about 6.7%, compared with an average rate of about 4.4% in February 2019, and the real U.S. median sale price in June 2006 was $247,090 (or $197,000 in 2006 dollars), compared with a February 2019 median of $218,106.
 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% down payment. It does not include taxes or insurance, which vary geographically. The typical mortgage payment is a good gauge of affordability over time because, when adjusted for inflation, it shows the monthly principal and interest amount homebuyers have committed to historically in order to buy the median priced U.S. home.
 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.
 Inflation adjustments made with the U.S. Bureau of Labor Statistics Consumer Price Index (CPI), Urban Consumer – All Items.
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