IRVINE, Calif. – Oct. 25, 2018 – While recent signs suggest that the real estate market may be shifting toward homebuyers, prices are still rising in many areas of the country. The median sales price in July was $230,411 – up 5.8 percent year over year.
But if your buyers are hoping to wait out the current seller's market, they should remember that mortgage rates are also increasing, and the typical mortgage payment jumped 13.1 percent over that same one-year period – largely due to a nearly 0.6 percentage point increase in mortgage rates, according to data from CoreLogic.
Most experts also expect mortgage rates to continue moving higher. CoreLogic researchers predict a nearly 10 percent increase in buyers' mortgage payments by July 2019 – twice the rate expected for home prices. Rates are expected to increase by about 0.43 percentage points between July 2018 and July 2019; median home sale prices are predicted to rise by 1.8 percent in real terms over that same period.
Based on those projections, CoreLogic researchers predict that an inflation-adjusted typical monthly mortgage payment will rise from July 2018's $937 to $1,003 by July 2019.
In addition, real disposable income probably won't increase enough to compensate for the higher mortgage rates. It's expected to go up by only around 2.5 percent over the next year. That means "homebuyers would see a larger chunk of their incomes devoted to mortgage payments," CoreLogic researchers say.
To calculate the typical mortgage payment, CoreLogic researchers use Freddie Mac's average rate on a 30-year fixed-rate mortgage with a 20 percent down payment (not factoring in taxes or insurance). The typical mortgage payment standard is used to help judge affordability since it shows the monthly amount a borrower would have to qualify for to get a mortgage to purchase a median-priced U.S. home.
Even if mortgage rates continue to go up, however, they're still low right now based on historical standards. In July 2018, the typical inflation-adjusted mortgage payment was 26.8 percent below the all-time peak of $1,280 in July 2006. The average mortgage rate in June 2006 was 6.7 percent compared to 4.5 percent in July 2018.
Source: "Homebuyers' 'Typical Mortgage Payment' Rising at Twice the Rate of Prices," CoreLogic Insights Blog (Oct. 17, 2018)