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Housing Affordability vs. Mortgage Payments

Affordability in 10 of the nation's largest metros is waning as home sale prices in these cities approach within 10 percent of an all-time high. However, an analysis of some of the costliest housing markets by CoreLogic has found that despite waning affordability, the inflation-adjusted, principal-and-interest mortgage payment commitments by homebuyers remain lower than their pre-crisis peak in these cities.

For this analysis, CoreLogic researchers measured the impact of inflation, mortgage rates and home prices on affordability in these cities over time. To weigh these factors, CoreLogic used the "typical mortgage payment" model. This model uses mortgage-rate-adjusted monthly payment based on each month’s median home sale price and is calculated using Freddie Mac's average rate on a 30-year fixed-rate mortgage with a 20 percent down payment, not including taxes or insurance. This model shows the monthly amount that a borrower would have to qualify to get a mortgage to buy a median-priced home.

CoreLogic looked at the typical mortgage payments over time in Boston, Massachusetts; Chicago, Illinois; Denver, Colorado; Houston, Texas; Las Vegas, Nevada; Los Angeles, California; Miami, Florida; New York-New Jersey; San Francisco, California; and Washington, D.C., for this analysis.

It found that while the payments trended higher in all of the top 10 metros in recent years, they remained below peak levels this March in all but Denver and San Francisco. Typical mortgage payments in both these cities reached record levels because home prices in these regions approached new highs due to strong job growth in the technology sector, which increased housing demand, even as inventory shortages continued.

For the rest of the metros studied by CoreLogic, it found that the main reason for typical mortgage payments to remain below record level was due to the difference between the mortgage rates in June 2006 and March 2018. "The average mortgage rate back in June 2006, when the U.S. typical mortgage payment peaked, was about 6.7 percent, compared with an average mortgage rate of about 4.4 percent in March 2018," CoreLogic researchers said. "Also, the inflation-adjusted U.S. median sale price in June 2006 was $247,110 compared with $213,400 in March 2018."

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. You can contact her at Radhika.Ojha@theMReport.com.

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