Monthly Mortgage Payments Are Becoming More Affordable

The monthly mortgage payment made by the typical home owner is becoming more affordable, according to information from real estate data firm CoreLogic. The “typical mortgage payment”, or the monthly principal-and-interest payment on the nation’s median-priced home, fell year-over-year again this June after doing so for the first time in nearly three years in May. What's behind this welcome increase in affordability? A combination of falling mortgage interest rates, slowing home price growth, and rising income among buyers.

After dropping nearly 3% year-over-year in May, the typical monthly mortgage payment fell again in June, this time by over 6% year-over-year. This June drop in cost occurred despite the fact that the U.S. median sale price rose 3.3% in the preceding year, reaching $235,433. If the total cost of mortgages is increasing, then how can monthly mortgage payments be decreasing? There are three major factors in play.

First, although home prices are still increasing, the rate at which the price growth is occurring is slowing down. While home prices rose 5% from June 2017 to June 2018, they only rose by the aforementioned 3.3% between June 2018 and June 2019. This means that the effect of price growth decreased year-over-year.

Second, and most importantly, mortgage rates have fallen significantly over the past year. Rates fell by around 0.8 percentage points from last June to this June, whereas they rose by 0.7 percentage points from June 2017 to June 2018. This, combined with the faster price growth observed during that time period, resulted in a 14% year-over-year increase in the typical mortgage payment. Comparatively, even though prices still rose by 3.3% year-over-year in June 2019, the typical mortgage payment fell by 6%. This stark difference occurred thanks to the reversal of mortgage rates.

Finally, affordability of mortgage payments is up more generally thanks to an increase in real personal disposable income, which rose by an average annual rate of about 3.3% during the first two quarters of 2019.

In order to provide historical perspective, CoreLogic also provided "real" price and mortgage payment values by adjusting past years for inflation. This adjustment revealed that June 2006 had the highest real mortgage payments since the millennium. At that time, the real typical mortgage payment was $1,287 per month, almost 32% higher than it was in June of this year.

To learn more about the increased affordability of monthly mortgage payments, and why payments are expected to decline even further, read this article from CoreLogic.com.