While the median price of a home sold nationally increased
more than 5 percent over the 12 months ended in October, the monthly payment on
that home went up by more than three times as much. That’s the bad news. The good news is, that may be as bad as it
Andrew LePage writes in the CoreLogic Insights blog that the median price of a home sold in October 2018
was $218,733, a 5.2 percent annual increase. Over that same period mortgage interest rates
rose by 0.9 percentage point. This
magnified the home price appreciation and led to a 17 percent increase in the
principal and interest payment on that home.
However, LePage said that forecasts for both home prices and mortgage rates
indicate a much slower increase in mortgage payments this year, probably closer
to 7 percent. The CoreLogic Home Price Index forecasts that home prices should appreciate
by 4.8 percent annually by October 2019 and there should be only an 0.2 percent
uptick in mortgage rates. The latter number is based on the average of
forecasts from Freddie Mac, Fannie Mae, Mortgage Bankers Association, National
Association of Realtors, National Association of Home Builders and IHS Markit.
LePage says that the typical mortgage payment, when adjusted for inflation
puts homebuyers’ current costs in the proper historical context. Figure 2 shows
that while the real typical mortgage payment has trended higher in recent
years, in October 2018 it remained 28.0 percent below the all-time peak of
$1,275 in June 2006. That’s because the average mortgage rate back in June 2006
was about 6.7 percent, compared with an average rate of about 4.8 percent in
October 2018, and the real U.S. median sale price in June 2006 was $247,067 (or
$197,200 in 2006 dollars), compared with an October 2018 median of $218,733.
The October 2018 to October 2019 forecast above, reflecting home price
growth of 4.8 percent is in real dollars. When real or inflation adjusted
numbers are used, the median sales price will rise 2.5 percent. Using those
numbers and the consensus rate forecast of 0.2 percent, the real typical
monthly mortgage payment in October will be $963 in October 2019 compared to
$918 last October, a 4.9 percent year-over-year increase, even more modest than
the 7.2 percent nominal projection.
LePage adds that HIS Market forecasts that real disposable income will rise
by a little less than 3 percent over the next year. This means that, even with
the slower increase in monthly housing costs, homebuyers will have to dedicate
a larger share of their income to paying it.