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Rise in Mortgage Payments Outpacing Home Prices

The average principal-and-interest mortgage payment on median-priced homes is expected to jump another 10 percent by July 2019, according to CoreLogic’s Home Price Index (HPI) Forecast. That’s in addition to the 13 percent increase in mortgage payments that occurred over the last twelve months. Andrew LePage, a Research Analyst with CoreLogic, has written a blog post discussing these rising mortgage rates in comparison to the corresponding rise in home prices.

Seen together, the numbers are eye-catching, with growth in home values noticeably lagging behind the increase in mortgage payments. Although prices on median-priced homes are forecast to rise at the same time, CoreLogic’s HPI Forecast expects only a 4.3 percent increase in home prices year over year. In other words, mortgage payments are set to rise by nearly twice the amount home values will go up—and that’s after a preceding twelve months in which mortgage payments have gone up at double the rate as home values. Mortgage rates swelled 13 percent year over year, while median sale prices on U.S. homes rose only 6 percent.

Based on an averages of forecasts made by multiple lenders including Freddie Mac, Fannie Mae, and the National Association of Realtors, mortgage rates are likely to rise around 0.43 percent between July 2018 and July 2019—whereas the CoreLogic HPI Forecast indicates that the median sale price will rise a corresponding 1.8 percent over the same period. That’s 4.3 percent in nominal terms. That gives an inflation-adjusted typical monthly mortgage payment hike from $937 to $1003—a 7.0 percent year-over-year increase. In nominal terms, that means the average mortgage payment will increase a total 9.7 percent.

To put these numbers in context, LePage also mentions a forecast by IHS Markit Ltd, which predicts real disposable income will only rise 2.5 percent in the same time. This means a greater percentage of income for homebuyers will be swallowed up to cover the cost of their monthly mortgage.

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