Mortgage payments jump 60% in just two years
The latest Black Knight Mortgage Monitor Report paints a bleak picture of housing affordability with “limited room for a rebound” anytime soon.
- More than half of new mortgages come with a monthly payment of over $2,000 — before taxes and insurance.
- Housing costs continue to outstrip wage gains, leading to the worst affordability since 1984.
- Tappable equity is at near-record highs but homeowners are holding back, to the tune of nearly $200 billion.
Rising interest rates are supposed to tamp down inflation and make things more affordable. But try telling that to today's homebuyers, whose average mortgage payment has soared by $871 compared to buyers just two years ago.
That's just one eye-opening statistic highlighted in Black Knight's September 2023 Mortgage Monitor Report.
"The average principal and interest payment among borrowers purchasing a home using a 30-year fixed-rate loan hit its highest point ever in July at $2,306, and that's before taxes and insurance are factored in," said Black Knight Vice President of Enterprise Research Andy Walden. "That's up 60% over the past two years, which got us to thinking: just when did the $2,000 monthly mortgage payment become the norm?"
The answer, according to the report, is very recently.
"Just two years ago, only 18% of homebuyers were facing that level of payment; as of the end of July that share had grown to 51%. Beyond that, nearly one in four July homebuyers has payments north of $3,000, up from just 5% in 2021," Walden said. "We've been talking about affordability for quite some time now, but this puts the situation in stark relief."
Today, the monthly payment on the average-price home purchase eats up 38.3% of the median household income, making housing the least affordable it's been since 1984.
A different picture than challenges of the '80s (and it's not just the hair)
But it's not all on higher interest rates. Home prices have also outstripped wages. In fact, last time affordability was this bad, in December of 1984, the average conforming 30-year mortgage rate was 13.2%, according to the report. Since mortgage rates today are low by comparison, home prices are what make up the difference.
"For a bit of perspective, it would take some combination of roughly a 27% decline in home prices, a greater than 4% reduction in 30-year rates, or a 60% growth in median household income to bring affordability back to its 25-year average," the report says.
The report's gloomy picture continues in terms of home sales, which fell in July. Outside of the May 2020 pandemic lockdowns, "sales are now at their lowest levels since 2012, when the market was crawling out of the depths of the Great Financial Crisis," the report says.
"To make matters worse, weak application and rate lock volumes driven by worsening home affordability levels suggest there's limited room for a rebound on the horizon."
Homeowners have equity, but interest rates are holding them back
Besides hiking mortgage costs for buyers and keeping sellers on the sidelines, the rise in interest rates since last year has hurt current homeowners' ability to tap into their existing equity.
While tappable equity levels are at near-record highs, according to the report, homeowners simply aren't willing to draw on that asset, whether to renovate or buy a second home or even take a vacation.
"All in — including first-lien cash-out refis and second-lien home equity loans and lines — we saw mortgage holders withdraw $39 billion in equity from their homes in Q2 2023," said Walden. "That's up slightly from Q1's $37 billion, but only about half the volume of Q1 2022, before interest rates began to climb."
"In essence, over the last 15 months, there's been nearly $200 billion less equity withdrawn — and reinjected into the broader economy — than might otherwise have been, due in large part to elevated interest rates," Walden said.