Affordability, mortgage payment rises stabilize

by Steve Randall06 Aug 2018

Homebuyers should have seen some stability in affordability while current owners should not have seen sharp increases in their monthly mortgage payments.

Those are two key takeaways from the latest Mortgage Monitor from Black Knight Financial based on data at the end of June 2018.

Home prices are still rising but the pace slowed in each month from March through May. This was the first three-month slide in almost four years. And 32 states and 33 of the 50 largest metros saw depreciation of prices in that three-month period; California saw 3 times the national rate of depreciation.

In May, every state saw prices rise but by 0.93% on average, the smallest increase for May since 2014.

“All that said, the annual rate of home price growth is still historically high at 6.3 percent, some 2.5 percentage points above long-term norms. For more than six years, we’ve been riding a wave of home price appreciation above the 25-year average,” explains Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “The question now is whether tightening affordability will end that streak and if more deceleration is on the horizon.”

Mortgage payments increased just $4
Mortgage rates ticked lower to 4.52% in mid-July from 4.66% in late May. With homeowners seeing increases in their monthly mortgage payment of an average $138 in the first five months of 2018, the principal and interest payment for an average US home would have cost a relatively negligible $4 more.

“Still, the $1,213 in principal and interest per month needed to buy the average home remains near a post-recession high. While that represents a nearly $500 per month increase from the bottom of the market in 2012, it’s important to keep in mind that it’s still roughly 13% less than was required back in 2006,” adds Graboske.

The report also highlights that rising rates have meant that 1.7 million adjustable rate mortgage borrowers have seen their monthly payments increase by an average $70 over the past 12 months.

The average rate increase for a post-reset ARM was 0.5% in the past 12 months and 0.75% over the past 2 years, making an average rate of 4.5%.

The increase has not led to any measurable increase in post-reset ARM delinquencies but ARM loans are now prepaying at a 70% higher rate than their fixed-rate counterparts over the past 12 months.

Black Knight expects that this trend that may continue as an estimated 1 million borrowers would face an additional payment increase upon their next reset if index values were to hold steady at today’s rates.

The full report is available at BlackKnightInc.com.


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