As recent reports from Freddie Mac show, mortgage interest rates rose sharply after the election, recently climbing back above 4% for the first time since 2015.
While still low by historic standards, interest rates are still roughly 50-basis points higher now than they were before Donald Trump won the election, and a new report from Black Knight Financial Services shows the real impact of that increase on borrowers and potential borrowers.
The bottom line, according to Black Knight’s report, is that housing is less affordable right now than it was before the election.
In fact, home affordability is now at its lowest point since June 2010.
Per Black Knight’s report, the post-election interest rate bump means that the average home price is $16,400 more expensive for the buyer than it was before the election.
That equates to borrowers being on the hook for $60 more per month in principal and interest in order to purchase the median home. That figures rises to $72 per month for borrowers putting 3.5% down on their home.
According to Black Knight’s report, it now requires 21.6% of median income to purchase the median priced home nationwide, which is still low by historical standards, but the highest it's been since June 2010.
For reference, interest rates in June 2010 were 4.75%, but home prices were about 20% lower than they are now.
So the interest rate increase impacts potential borrowers and could inhibit home sales some moving forward.
But the impact isn’t felt by new buyers only.
According to Black Knight’s report, the number of potential refinance candidates fell by more than 50% over the last few weeks.
As a result of the increase rate bump, roughly 4.3 million borrowers were removed from the pool of potential refinance candidates.
That leaves 4 million borrowers in the total refinanceable population, which matches a 24-month low.
Black Knight notes that borrowers are still leaving $1 billion in potential savings on the table on a monthly basis, but that’s less than half the $2.1 billion that borrowers could have saved on a monthly basis if they refinanced before the election.
“The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year Treasury and 30-year mortgage interest rates,” said Black Knight Data & Analytics Executive Vice President Ben Graboske.
“As mortgage rates jumped 49 basis points in the weeks following the election, we saw the population of refinanceable borrowers cut by more than half,” Graboske continued.
“These changes will likely have an impact on refinance origination volumes moving forward,” Graboske added. “And, since higher interest rates tend to reduce the refinance share of the market – specifically in higher credit segments – which typically outperform their purchase mortgage counterparts, they may potentially impact overall mortgage performance as well.”