Refinancing is no longer an option for 6.5 million homeowners as rates have picked up over the summer months.
Since the start of 2018 there has been a 56% decrease in the number of homeowners who have a financial incentive to refinance – just 1.86 million – according to the September Mortgage Monitor Report from the data and analytics division of Black Knight Inc.
Interest rates for a 30-year fixed rate mortgage has climbed 0.35% over the past two months and is now up 0.85% year-to-date.
Ben Graboske, the division’s executive vice president, says that not locking in new rates is a missed opportunity for millions of homeowners who could have saved an aggregate $1.5 billion per month.
“This year alone, 2.2 million borrowers had the opportunity to see a 0.75% reduction on their first mortgage rates but did not take advantage of the reduced rates before increases to the 30-year fixed rate removed their incentive,” he said. “So far in 2018, the average 30-year fixed mortgage rate is up 0.85% – with 0.35% of that rise coming over the last two months after remaining flat for much of the summer. The result is that the refinanceable population has been cut by more than half – 56% – since the start of the year.”
Rising rates may force prices to ease
“The monthly principal and interest payment needed to purchase the average-priced home has seen a $190 per month increase since the beginning of 2018, an 18% jump,” said Graboske. “It now takes 23.6% of the median income to make monthly payments on the average-priced home, making housing the least affordable it’s been in nearly a decade.”
There is some relief, with prices up just 0.5% in August, around a third of the 25-year average for the month. And Graboske says the early indication is that September prices may have declined slightly, which would be the first pullback in 21 months and only the second since 2015.
“As rates were relatively flat from June through August, this represents a continued reaction to the tightening affordability that took place early in 2018, and not the most recent jump in rates,” explained Graboske. “We’ll be watching the data closely to see whether this second wave of interest rate rises enhances the slowdown we’re currently seeing in home price growth across the country.”
However, the prospect of further rate rises is still a challenge to first-time buyers in particular.
Black Knight’s analysis shows that even if home prices were to stay flat, another 0.50% increase in interest rates would make homes less affordable at the national level than those long-term norms
Ten states are already less affordable than their respective long-term norms, with another six within 1% of those benchmarks.
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