Interest rates have plunged by 40 basis points over the past six months. However, the bulk of the potential savings is offset by the accelerating rate of home price appreciation across the country.
“Rising home prices continue to offset the majority of would-be savings from recent interest rate declines, which has kept affordability near a postrecession low,” says Ben Graboske, executive vice president of data & analytics for Black Knight. “That being said, when viewing the market through a longer-term lens, affordability across most of the country still remains favorable to long-term benchmarks.”
As of September, 21.4 percent of the median income nationwide was required to purchase a median-priced home. From 1995 to 1999, that percentage was 24.2 percent, and from 2000 to 2003 it was 26.2 percent, according to Black Knight’s report.
While the monthly payment needed for a median-priced home is up $100 from a year ago, the national “payment-to-income” ratio remains 2.8 percent below averages from the late 1990s, according to the report.
“In looking at the affordability landscape across the country, we certainly see varying levels of affordability in each market compared to their own long-term benchmarks,” Graboske says. “But, by and large, the overall theme is that affordability in most areas, while tightening, remains favorable to long-term norms.”
Black Knight researchers note that 47 of 50 states’ payment-to-income ratios remain below their 1995–2003 averages. Hawaii, California, Oregon, and Washington, D.C., are the lone exceptions, where payment-to-income ratios are higher today than their long-term benchmarks.