Affordability Improving Across the Nation

Black Knight’s September Mortgage Monitor Report revealed that it now requires 20.7% of the national median income to make monthly principal and interest payment on an average-priced home—the second lowest payment-to-income ratio in 20 months. 

The report says the average 30-year interest rate at 3.64% has been a key factor, and that home affordability hit a 32-month high in September. 

According to the report, the $1,122 in monthly P&I required to purchase an average-priced home is 10% lower than in November when interest rates closed in on 5%. Home prices, however, have risen more than 4% since that point. 

Affordability was at a nine-year low in November when the payment-to-income ratio increased to 23.7%, causing an extended slowdown in home price growth. Falling rates over the past few months have boosted buying power by 16% ($46,000), while not impacting the P&I payments. 

Black Knight found that annual home price growth was flat in August—coming in at 3.8%—after rising for the first time in 17 months in July. June’s annual home price growth rate of 3.7% was the smallest in almost seven years before trending upward. 

“It remains to be seen if this is merely a lull in what could be a reheating housing market, or a sign that low interest rates and stronger affordability may not be enough to muster another meaningful rise in home price growth across the U.S,” said Black Knight Data & Analytics President Ben Graboske. “That the strongest gains in—and strongest levels of—affordability were in August and early September could bode well for September/October housing numbers. As such, we’ll be keeping a close eye on the numbers coming out of the Black Knight Home Price Index over the coming months.”

California now has seven of the 10 least affordable markets in the nation, while rates or near historical lows. Purchasing the average-priced home in Los Angeles requires nearly 43% of the median household income, which is more than twice the national average. Black Knight says this, though, is a sizeable decline from the nearly 71% required in 2006. 

Following Los Angeles was three other California markets: San Jose, San Francisco, and San Diego. 

Black Knight’s report found Dayton, Ohio, to be the most affordable market, as it requires just 12.6% of annual household income to afford a median-priced home. Fellow Ohio markets Akron and Youngstown were also considered among the most affordable markets.