Last year’s rising mortgage rates meant the monthly payments that many homebuyers struggled to qualify for were rising much faster than home prices. In November 2018, for example, the U.S. median sale price rose about 4% year over year, but the principal-and-interest payment on that median-priced home – what we call the “typical mortgage payment” – surged 17% because mortgage rates had risen a percentage point.
By March this year, however, declining mortgage rates had resulted in the annual growth rate for the typical mortgage payment dropping below that of home prices. Moreover, some rate and price forecasts suggest the mortgage payments homebuyers face the rest of this year will, on a year-over-year basis, be only slightly higher or a tad lower, which could help spur home sales.
The U.S. median sales price of $222,482 in March 2019 was up 3.5% year over year, down from an 8% annual gain in March 2018. The typical mortgage payment was only up 1.9% this March because of a roughly 0.1-percentage-point decline in mortgage rates over the prior year. In March 2018 the typical mortgage payment’s annual gain was 11%, thanks to a 0.2-percentage-point annual gain in mortgage rates.
Looking ahead, the CoreLogic Home Price Index (HPI) and HPI Forecast suggest annual gains in home prices each month from this April through next March will average 4.3%. That forecast, combined with the average among six mortgage rate forecasts, suggests that over that same period the annual change in the typical mortgage payment each month will average out to a gain of 0.9%, including five months in which there is a slight annual decline (Figure 1).
The CoreLogic HPI Forecast suggests the median sale price will rise 1.8% in real, or inflation-adjusted, terms over the year ending March 2020 (or 5.0% 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 $878 in March 2019 to $910 by March 2020, a 3.6% year-over-year gain. In nominal terms the typical mortgage payment’s year-over-year increase in March 2020 would be 6.9%.
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 March 2019 it remained 31.5% below the all-time peak of $1,281 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 4.3% in March 2019, and the real U.S. median sale price in June 2006 was $248,066 (or $197,000 in 2006 dollars), compared with a March 2019 median of $222,482.
 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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