Mortgage payment to income ratio

The latest report from Black Knight’s Mortgage Monitor was released this morning and it provided more timely information on home price appreciation than last week’s Home Price Indices (HPIs) from the FHFA and S&P. Case Shiller. The Mortgage Monitor price data covers the month of February while the other HPIs are limited to January.

We already know that mortgage rates rose at a fairly robust pace in January, but that was too little or too late to make a difference to price appreciation in February. Black Knight posted its strongest year-over-year home price growth with a record 19.6%.

Notably, the annual growth rate was at least 10% in the nation’s 100 largest markets for the first time on record, with the top five niches (Tampa, Austin, Raleigh, Phoenix, Nashville) all exceeding 30%.

While these appreciation numbers are very much in line with other HPIs, the Mortgage Monitor goes one step further and compares price growth to other data. One of the two main additional pieces of data is the average mortgage payment associated with the home at the average price. After all, rates are now lower than they were during the last price spike in 2006. Nevertheless, the price difference has now more than made up for the rate difference.

Payment amounts tell us very little about the current housing environment. Income has increased significantly since 2006. As such, Black Knight’s second key piece of data compares median incomes to average house prices to arrive at a payout-to-income ratio. In other words, how much of the median family income is needed to afford a house at the average price (20% discount, 30 years fixed)?

As the chart suggests, this ratio was only higher for a few years before the mortgage bust and financial crisis of 2008. That doesn’t mean the same statistic will produce the same result in 2022 or 2023. There were variables in play then that don’t contribute to risk in the same way now. Nevertheless, this indicates that accessibility constraints play more of a role from now on.

As always, Mortgage Monitor contains a host of other charts with interesting updates on the housing and mortgage markets. See the full report here.

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