What Factors Are Stabilizing Housing Affordability? by Kendall Baer

A “pretty amazing balancing act” between low interest rates and rising home prices is reportedly keeping affordability stable at the national level, according to the latest Black Knight Mortgage Monitor.

The report found that the average U.S. home value increased by $13,500 from the year prior, but low interest rates mean the monthly P&I payment on the median-priced home is only a dollar less than last year. Additionally, it currently takes only 20 percent of the median monthly income to cover monthly payments on the median-priced home. This is well below historical norms.

Despite these national levels, affordability varies across the country based on home price appreciation (HPA). For example, the report shows that in Washington and Oregon, it costs 5-6 percent more in P&I each month to buy the median priced home than the year before. In contrast, states such as New Jersey, Wyoming, North Dakota and Connecticut cost 3-5 percent less each month than in the previous year.

If the rates where to increase though, this would disrupt the balance that affordability is seeing nationally. The report computes that a 50-basis point increase in interest rates would be equivalent to a $17,000 increase in the average home price, thus potentially bringing the affordability ratio up to 21.5 percent of median income. That would make affordability the highest it’s been post-crisis. With a 1 percent rise in rates, the payment-to-income ratio would potentially increase to 23 percent, the equivalent of increasing the cost of the average home by $34,000.

Additionally, at 1 percent, the rate of all mortgages that are in active foreclosure fell to its lowest point in nine years. Month-over-month, the number of active foreclosures dropped 3.38 percent but it was year-over-year where the truly substantial decrease was seen, 31.23 percent. Total foreclosure starts fell to 61,700 this month, a decrease of 10.32 percent from the previous month and 22.78 from the year prior. Likewise, foreclosure sales decreased 5.82 percent from August to 2.03 percent. This was an increase though from last year by 2.47 percent.

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