It is no secret that rising interest rates mean homebuyers will see a larger chunk of their incomes devoted to mortgage payments.
But are rising interest rates proving to be detrimental to new homebuyers? A recent piece by Andrew Lepage in the CoreLogic Insights blogs seems to indicate “yes.”
The blog is titled: "Homebuyers’ Typical Mortgage Payment” Rising At Twice the Rate of Prices” and suggests a nearly 10% increase in homebuyers mortgage payment by next July.
Why is this metric important? “The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced U.S. home,” Lepage writes.
Here is a more in-depth explanation from the blog:
While the U.S. median sale price has risen by close to 6% over the past year the principal-and-interest mortgage payment on that median-priced home has increased around 13%. Moreover, while the CoreLogic Home Price Index Forecast suggests U.S. home prices will be up 4.3% year over year in July 2019, some mortgage rate forecasts indicate the mortgage payments homebuyers will face then will have risen by more than twice as much.
CoreLogic defines a typical mortgage payment as a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. CoreLogic calculates this score by using Freddie Mac’s average rate on a 30-year fixed-rate mortgage, while assuming a 20% down payment. It does not include taxes or insurance.