Black Knight: July Affordability Improves to 18-Month High

Black Knight, Jacksonville, Fla., said falling interest rates and slowing home price appreciation in June brought housing affordability to its highest level since December 2017.

The company’s monthly Mortgage Monitor report said as 30-year mortgage interest rates fell to 3.75%, the share of the median monthly income needed to make principal and interest payments on the average home fell to 21.3%, a decline from 23.3% in November 2018. Despite the average home price rising by more than $12,000 from November, today’s lower fixed interest rates have equated to a $108 monthly payment cut on the average home purchased with 20% down.

Black Knight Data and Analytics President Ben Graboske said the decline in 30-year rates has been equivalent to a 15% increase in buying power, meaning that prospective homebuyers shopping for the average-priced home could now purchase $45,000 more than last fall while keeping monthly payments the same.

“For much of the past year and a half, affordability pressures have put a damper on home price appreciation,” Graboske said. “As affordability pressures have eased, it also appears to be putting the brakes on the home price deceleration.”

The report noted whereas nine states were less affordable than their long-term norms back in November–a key driver behind the subsequent deceleration in home prices–only California and Hawaii remained so as of July.

“The rate of annual home price growth has declined for 15 consecutive months,” Graboske said. “More recently, declining 30-year fixed interest rates have helped to ease some of those pressures, improving the affordability outlook considerably.”

Black Knight said early home price numbers for June suggest the slowing home price growth seen over the past 15 months has now leveled off, driven by falling interest rates and improving home affordability.

The analysis found improved affordability has begun to curb the strong slowing in home prices in West Coast housing markets. California went from having one of the top five home price growth rates of any state (8.6%) one year ago to second-to-last as of June, with home price growth slowing to just 1.3% year-over-year. While California is one of only two states that remain less affordable than their long-term norms, affordability in the state has improved significantly in recent months. It now requires 34% of the median income to purchase the average home in California, down from 38% in November.

The report said home price slowing has begun to level off in California as a whole and several of the West Coast’s largest markets. While prices in Los Angeles, San Francisco, San Diego and Seattle have all risen by 1.1% or less over the past 12 months, the rates at which they’re slowing have begun to taper. In San Jose, where home prices are down by more than 6% from June 2018, the rate of decline has begun to flatten.

“These are all good signs, given these markets’ sharp reaction to rising rates and tightening affordability in late 2018,” Graboske said.