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How Mortgage Payments Can Stoke Demand

Home valuesHomeowners are paying less for their mortgage than they were last year, according to a CoreLogic analysis.

The analysis compared current home price growth and mortgage rates to the same period last year. It revealed that monthly mortgage payments last year were rising much faster than home prices.

" The most extreme example is November 2018, when the U.S. median sale price was up 4% year over year but the principal-and-interest payment on that median-priced home was up 17% because mortgage rates had shot up a percentage point from a year earlier," Andrew LePage, Professional, Research Analyst, Office of the Chief Economist, CoreLogic wrote in a blog.

However, today, the drop in mortgage rates since April has resulted in a 1% year-over-year drop in a typical mortgage payment. This, despite a gain of 3.3% in the median sale price, the analysis found.

The trend could also spur sales, the CoreLogic analysis revealed. In fact, falling mortgage payments are also likely to spur home sales.

While CoreLogic's Home Price Index (HPI), suggests home prices could average 5.2% by April 2020, the analysis revealed that the typical mortgage payment each month could decline by 1.6%. This includes annual declines averaging 3.6% during the last eight months of this year.

But will this trend last?

The analysis further revealed that while median sale prices would rise 3.1% by April 2020, the typical monthly mortgage payment would rise from $883 in April 2019 to $901 by April 2020, a 2.1% year-over-year gain. In nominal terms, the year-over-year increase in April 2020 would be 4.8%.

"When adjusted for inflation the typical mortgage payment puts homebuyers’ current costs in the proper historical context," LePage said. "While the real typical mortgage payment has trended higher in recent years, in April 2019 it remained 31.3% below the all-time peak of $1,285 in June 2006."

The analysis revealed that both, mortgage rates as well as home prices in April 2019 were lower than the peak in June 2006. While the average mortgage rate back in June 2006 was about 6.7%, compared with about 4.1% in April 2019, the median sale price in June 2006 was $248,894, compared with $227,238 in April.

Giving the definition of a "typical mortgage payment," LePage said that it is a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. Additionally, a typical mortgage payment also helped to measure the impact of inflation, mortgage rates, and home prices on affordability over time.

About Author: Radhika Ojha

Radhika Ojha is an independent writer and editor. A former Online Editor and currently a reporter for MReport, she 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 Houston, Texas.

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