Housing affordability has been trending below historical averages since 2012, even falling to a 10-year low in the summer of 2018.
This general lack of affordability coupled with the nation’s lackluster inventory growth has left many potential buyers priced out of the market.
Fortunately, the nation’s low-interest-rate environment has spurred significant growth in affordability as Black Knight claims that America’s national payment-to-income ratio declined during the month of September.
According to the company’s Mortgage Monitor report, it only takes 20.7% of the national median income to make monthly principal and interest payments on an average-priced home.
This marks the second-lowest reading within the last 20 months and boosts the nation’s overall housing affordability to a near three-year high.
“Back in November 2018, we were reporting on home affordability hitting a nine-year low,” said Ben Graboske, Black Knight’s president of data & analytics. “Interest rates were nearing 5%, pushing the share of national median income required to make the P&I payments on the purchase of the average-priced home to 23.7%. While still below long-term averages, that made housing the least affordable it had been since 2009, spurring a noticeable and extended slowdown in home price growth.”
Graboske says in the time since, rates, which came in at 3.64% last week, have tumbled and the affordability outlook has improved significantly.
“The payment-to-income ratio is now 20.7%, which is the second-lowest it has been in 20 months, behind only August of this year, and about 4.5% below the long-term, pre-crisis norm,” Graboske said. “To help quantify the boost this has given to homebuyers, consider that today’s prevailing 30-year rate has cut the monthly P&I payment to purchase the average-priced home by 10% – about $124 per month – from November.”
Put another way, Graboske says the decline in rates since November has been enough to boost consumer buying power by $46,000 while keeping monthly P&I payments relatively the same.
