September’s Mortgage Monitor Report published by Black Knight, Inc., based on the latest mortgage, real estate, and public record data sets which overall revealed that mortgage interest rates—which are at 22-year highs—have led to the rise of $2,000+ monthly mortgage payments (before insurance, utilities, fees, and the like) and have rapidly become the norm across the country.
As Black Knight VP of Enterprise Research Andy Walden explains, this is a remarkably recent development.
"The average principal and interest payment among borrowers purchasing a home using a 30-year fixed-rate loan hit its highest point ever in July at $2,306, and that's before taxes and insurance are factored in." said Walden. "That's up 60% over the past two years, which got us to thinking: just when did the $2,000 monthly mortgage payment become the norm? Just two years ago, only 18% of homebuyers were facing that level of payment; as of the end of July that share had grown to 51%. Beyond that, nearly one in four July homebuyers has payments north of $3,000, up from just 5% in 2021. We've been talking about affordability for quite some time now, but this puts the situation in stark relief.
"Rates aren't just hampering prospective homebuyers, though. While tappable equity levels have returned to near- record highs, rising rates are having a clear impact on how—and how much—equity mortgage holders are willing to withdraw from their homes. All in—including first-lien cash-out refis and second-lien home equity loans and lines – we saw mortgage holders withdraw $39B in equity from their homes in Q2 2023. That's up slightly from Q1's $37B, but only about half the volume of Q1 2022, before interest rates began to climb. Historically, from 2010-2021, mortgage holders pulled out just under 1% of available equity each quarter. But over the last three quarters, that share has fallen to 0.4%, which suggests rising rates have resulted in a roughly 55% decline in equity withdrawals. In essence, over the last 15 months, there's been nearly $200B less equity withdrawn – and reinjected into the broader economy – than might otherwise have been, due in large part to elevated interest rates."
In addition, the data on Home Equity Lines of Credit (HELOCs) suggest further market movement, as borrowers are mostly able to get lower rates on a HELOC than a cash-out refinance because HELOCs are pegged to the prime interest rate. In the time since, HELOC rates have risen along with aggressive Fed rate hikes, with the average HELOC offering now above 8.5% for the first time in the 15+ years Black Knight has been tracking the data. Such HELOC rate increases have left borrowers without an overly attractive option to tap into their equity and have led to weaker withdrawal volumes this spring and summer, with second-lien withdrawals down by a little over 30% from the same time last year. However, HELOCs still remain the more attractive of the two options for homeowners needing to access equity without sacrificing record-low first-lien rates.
Click here to view the report in its entirety.