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The Burden of Mortgage

Rising home prices have proven detrimental to homeownership for many buyers across some of the largest markets. However, new data suggests that the typical mortgage payment homebuyers face is far outpacing the rise in home prices. Andrew LePage, Research Analyst at CoreLogic indicated an 11 percent jump in buyers’ mortgage payments by 2019.

The principal-and-interest mortgage payment recorded an upward spike by more than 16 percent, while nationally, the median price paid for a home has risen by less than 6 percent over the past year. LePage pointed out that September 2019 will see a rise in prices by almost 5 percent on an annual basis, according to CoreLogic Home Price Index Forecast. However, some other forecasts project a further rise in mortgage payments homebuyers around the same period next year, he stated.

Typical mortgage payment—a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price, is helpful in measuring the impact of inflation, mortgage rates and home prices on affordability, according to LePage. Typical mortgage payments are strong indicators of affordability as “it shows the monthly amount that a borrower would have to qualify for, to get a mortgage for a median-priced U.S. home,” he said.  

The U.S. median sale price during September 2018 at $221,697 increased by 5.6 percent annually, whereas a 0.8-percentage-point rise in mortgage rates over that one-year period led to a sharp rise in typical mortgage payment by 16.4 percent. The CoreLogic HPI Forecast anticipates the median sale price to rise by 2.7 percent in real, or inflation-adjusted, terms between September 2018 and 2019. These projections also indicate that typical monthly mortgage payment will record an 8.9 percent year-over-year gain.

Quoting an IHS Markit forecast, LePage pointed out the possibility of a rise in real disposable income by 2.6 percent over the next year—a trend that will see homebuyers spending a larger share of their incomes on mortgage payments.  

Read the full report here [1].