Affordability is the best it's been in over a year, according to the latest Mortgage Monitor Report from Black Knight. Black Knight Data & Analytics President Ben Graboske notes in the report that as a result of falling interest rates and slowing home price appreciation, affordability is the strongest it has been in 18 months.
“For much of the past year and a half, affordability pressures have put a damper on home price appreciation,” said Graboske. “Indeed, the rate of annual home price growth has declined for 15 consecutive months. More recently, declining 30-year fixed interest rates have helped to ease some of those pressures, improving the affordability outlook considerably. In November 2018 – when rising interest rates hit a seven-year high and home price growth fell by half a percent in a single month – it took 23.3% of the median household income to make the principal and interest payments when purchasing the average-priced home. As 30-year rates fell to 3.75%, that share fell to 21.3%, the lowest it’s been in 18 months.
According to the report, 30-year mortgage interest rates fell to 3.75% in July, while the share of the median monthly income needed to make principal and interest payments on the average home fell to 21.3%, a decline from 23.3% in November 2018. Black Knight notes that the decline in 30-year rates has been equivalent to a 15% increase in buying power, and the average-priced home could now purchase $45,000 more than last fall while keeping monthly payments the same.
Additionally, improved affordability has begun to curb the strong slowing in home prices in West Coast housing markets. Black Knight notes that California went from having one of the top five home price growth rates of any state (8.6%) one year ago to second-to-last as of June 2019, at 1.3%. California affordability has improved significantly, although the state still less affordable than its long-term norms. It now requires 34% of the median income to purchase the average home in California, down from 38% in November.