The most recent Mortgage Monitor Report by Black Knight Inc., a mortgage data and performance information provider, shows home prices are actually more affordable now than they were in the late 1990s. Interest rates have decreased 40 basis points over the last six months, but the majority of the possible savings is counterbalanced by the fast and increasing rate of home price appreciation across the country.
“Rising home prices continue to offset the majority of would-be savings from recent interest rate declines, which has kept affordability near a post-recession low,” says Ben Graboske, executive vice president of data & analytics for Black Knight. “That being said, when viewing the market through a longer-term lens, affordability across most of the country still remains favorable to long-term benchmarks.”
As of September, 21.4 percent of the median income across the United States was required to purchase a median-priced home. From 1995 to 1999, that percentage was 24.2 percent, and from 2000 to 2003 the study results show it was 26.2 percent, according to Black Knight’s report.
While the monthly payment that is required for a median-priced home is up $100 in comparison to a year ago, the national “payment-to-income” ratio remains 2.8 percent below averages from the late 1990s, according to the report.
“In looking at the affordability landscape across the country, we certainly see varying levels of affordability in each market compared to their own long-term benchmarks,” Graboske says. “But, by and large, the overall theme is that affordability in most areas, while tightening, remains favorable to long-term norms.”
Black Knight researchers note that 47 of 50 states’ payment-to-income ratios remain below their 1995–2003 averages. Hawaii, California, Oregon, and Washington, D.C., are the lone exceptions, where payment-to-income ratios are higher today than their long-term averages.