Recent income growth has not been enough to keep up with rising mortgage rates and home prices, according to a new report by Black Knight, a real estate technology and data firm. Rising home prices and mortgage rates have increased the monthly payment of a median-priced home purchased with a 20 percent down payment on a 30-year mortgage by $150 per month. That marks about a 14 percent increase since the start of 2018.
While housing affordability stays better than long-term averages across most of the country, seven states are now less affordable than their long-term norms; 12 more states are approaching that point, according to the report. The report also cautions that housing affordability is likely to worsen across the country.
“Though much of the country remains more affordable than long-term norms, the current trajectory would change that sooner rather than later,” says Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “We’ve modeled out multiple economic scenarios, some more conservative than others, and even with historically strong income growth, the current combination of home price and interest rate increases isn’t sustainable.”
Incomes have been growing at a rate of 4.37 percent annually, compared to an average of 2.75 percent over 25 years, Graboske notes. “A half percentage point increase in interest rates each year, combined with the current rate of [monthly home price appreciation], would push affordability to an all-time low by 2023,” he says.
Washington, D.C., owners need the largest share of median income at 40 percent to purchase a median-priced home, followed by California (38%), Hawaii (35%), and Maine (33 percent), according to the report.
Some analysts are forecasting that monthly home price appreciation will slow down. March’s slight downward shift in annual price appreciation—which is still around 6.5 percent—may already suggest some degree of reaction to tightening affordability at the national level, Graboske says.
Source: Black Knight Financial Services
