Home Prices are increasing BUT Mortgage Interest Rates are declining

Study: It’s 16% Cheaper to Buy Now than Late 2018

Home prices are going up; mortgage rates are going down. A study by Black Knight found that the buyer savings from mortgage rate drops more than offsets the rise in home prices by about 16% (about $48,000) in just over a year’s time.

JACKSONVILLE, Fla. – Jacksonville-based Black Knight Inc. examined home price growth and affordability in the context of today’s lower-interest-rate environment in its latest monthly report. It found that the negative impact of rising home prices has been more than offset by mortgage interest rate declines.

“Even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018,” says Black Knight Data & Analytics President Ben Graboske. “At that time, the housing market was red-hot with national home price growth at 6.6% and climbing – before rising rates and tightening affordability triggered a pullback in growth rates.”

Even though average home prices have increased by almost $13,000 a little over a year ago, “the monthly mortgage payment required to buy that same home has actually dropped by 10% over that same span due to falling interest rates,” Graboske says.

Black Knight analysis

  • Home prices continue to react to falling interest rates. December marked four consecutive months of acceleration in the annual rate of growth and had the largest single-month acceleration in more than 6.5 years
  • After falling from nearly 7% in early 2018 to 3.8% in August 2019, the national home price growth rate gained nearly a full percentage point increase over the last four months of 2019, climbing to 4.7% to close out the year
  • Still, 30-year interest rates fell to 3.6% in late January 2020 and made housing the most affordable it’s been since early 2018
  • Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has dropped by 10% over that same span due to falling interest rates
  • It now requires 20.6% of median monthly income to purchase the same home as it did just over a year ago – the smallest such payment-to-income ratio in two years Put another way, buying power for those shopping for the average-priced home has increased by 16% (approximately $48,000) in just over a year’s time
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