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Housing Payments Expected to Rise 3 Times Faster Than Home Prices

Core Logic just released the March 2018 Market Pulse. There are three interesting articles: two are retrospective looks at 2017, when the average homeowner gained $15K in home equity, and the average rent went up 3%.

The third article explores the impact of mortgage rate increases on affordability. The core logic analysis tracks the changes in the “typical mortgage payment” for the median-priced house in the US. They assume a 20% down-payment, a 30 year amortization schedule and ignore property taxes and insurance from their calculation. This is the most often used metric in the industry to talk about affordability.

Housing Payments Expected to Rise 3 Times Faster Than Home Prices

The Core Logic consensus estimates almost a 14% increase in the typical mortgage payment during 2018. The increase of the median home price is estimated to approximately the historical average price increase of roughly 4%. The consensus estimate from the Core Logic panel expects mortgage interest rates to be .82% higher when we exit 2018 than when we entered, and this increase in financing costs accounts for roughly 10% of the expected increase in the typical mortgage payment.

Housing Payments Expected to Rise 3 Times Faster Than Home Prices

Let’s track the impact of these predictions on the median home price in Portland Metro, In January of this year the median home price was $390K. We can reasonable expect that median home price will increase to roughly $406K next January. Mortgage rates in January were roughly 4.125%. Assuming the consensus estimate increase of 82 basis points is correct, we should expect mortgage interests rates of 5% this coming January 2019. Portland Metro’s “typical mortgage payment” in January 2018 was $1,512 and the payment based on the assumptions above would be $1,743, or an increase of 15%. You can see the impact of rate hikes.

If you’ve been paying attention to the market recently, you might think that this is “old news.” Rates today are already 4.75%. and have been hovering in this range for most of March. The movement from 4.125% to 4.75% happened over the first 8 weeks of the year. If you’ve been a regular reader of our blog, you will recall that mortgage interest rates correlate most tightly with 10 year treasuries. So what’s happening with treasuries? They’ve been bumping up against the technical “ceiling” of 2.91% recently. Should they close above this threshold, we can expect an immediate increase in mortgage interest rates.

So, what to do if you want to buy a house or make a move? If you’re just looking at the economic side, especially payments, this data suggests that you move sooner than later. Other factors, like seasonality and inventory availability are also important. If you want to talk it through, just give us a call. We’re happy to send you the Market Pulse report as well.