Study Says: Home Affordability at its Lowest Since 2009

How much does it take to buy an average single-family home in the country? The answer would be approximately $283,000 according to Black Knight Inc’s Mortgage Monitor Report released on Monday.

Median home values in the U.S. increased by $17,570 and hit an all-time high of $283,000 by the end of 2017 according to data from the report, making this the largest rise in home values by dollar amount since 2006.

The monthly report, which looks at a variety of issues related to the mortgage and financial services industry including home affordability, indicated that home prices appreciated at a rate of 6.6 percent in 2017. This was the highest appreciation rate since 2013 and above the 25 year average of 3.8 percent.

But what does this data mean for the average homebuyer? If we look at it in terms of stark numbers, the recent hikes in mortgage rates, coupled with the rising home prices means that a borrower would have to pay $67 per month more to purchase a home that comes within the average median value.

“Overall, it costs $1,141 in monthly principal and interest to purchase the median home using a 30-year fixed mortgage with 20 percent down, the largest monthly payment required since late 2008,” the report said. “It currently takes 23 percent of the median income to purchase the median home, the highest share since 2009.”

Additionally, rising rates could add pressure on borrowers with below average incomes buying below average priced homes as affordability is lower in those segments compared to long-term benchmarks and rising rates put more strain on it.

Despite these rises and strain on affordability, the report indicated, purchasing the median home required 1 percent less of the median income than it did from 1995-1999, 3 percent less than 2000-2003 and two percent below those combined benchmarks (1995-2003).

“Average incomes are more than 20 percent higher today than in 2006 (according to the Census Bureau) and interest rates 2.3 percent lower. As such, affordability remains much better than at the pre-recession peak, even though today’s home prices have surpassed 2006 levels,” the report said. “Assuming all else remains equal, to return to 2006 affordability levels, interest
rates would have to climb north of 8 percent or the median home price increase to $420,000.”

To learn more about the latest data on rates and how they affect housing affordability, click here.