BAM Key Details:
- Black Knight has released its September 2023 Mortgage Monitor Report, which shows monthly mortgage payments of $2,000–$3,000 have rapidly become the norm with spiking mortgage rates and rising home prices.
- With mortgage rates reaching 22-year highs, 51% of homebuyers are looking at monthly P&I payments of more than $2,000, and almost a quarter (23%) are facing payments of over $3,000.
Black Knight, Inc. just released its September 2023 Mortgage Monitor Report with a new norm for monthly mortgage payments.
Over half (51%) of today’s homebuyers are facing monthly principal and interest costs (P&I) of more than $2,000. Almost a quarter (23%) are looking at over $3,000. And we’re not even counting taxes and insurance.
With mortgage rates at 22-year highs and home prices steadily rising, the cost of buying a home has gone up considerably since 2021. And for would-be homebuyers, the prospect of $2,000–$3,000 monthly mortgage payments is exactly why so many are continuing to rent.
Source: Black Knight
The average principal and interest payment among borrowers purchasing a home using a 30-year fixed-rate loan hit its highest point ever in July at $2,306, and that’s before taxes and insurance are factored in. That’s up 60% over the past two years, which got us to thinking: just when did the $2,000 monthly mortgage payment become the norm? Just two years ago, only 18% of homebuyers were facing that level of payment; as of the end of July that share had grown to 51%. Beyond that, nearly one in four July homebuyers has payments north of $3,000, up from just 5% in 2021. We’ve been talking about affordability for quite some time now, but this puts the situation in stark relief.
Rates aren’t just hampering prospective homebuyers, though. While tappable equity levels have returned to near-record highs, rising rates are having a clear impact on how – and how much – equity mortgage holders are willing to withdraw from their homes. All in – including first-lien cash-out refis and second-lien home equity loans and lines – we saw mortgage holders withdraw $39B in equity from their homes in Q2 2023. That’s up slightly from Q1’s $37B, but only about half the volume of Q1 2022, before interest rates began to climb. Historically, from 2010-2021, mortgage holders pulled out just under 1% of available equity each quarter. But over the last three quarters, that share has fallen to 0.4%, which suggests rising rates have resulted in a roughly 55% decline in equity withdrawals. In essence, over the last 15 months, there’s been nearly $200B less equity withdrawn – and reinjected into the broader economy – than might otherwise have been, due in large part to elevated interest rates.
Monthly payments from 2021 to the present
Borrowers purchasing a home in July 2023, with a 30-year fixed-rate loan, were looking at an average monthly P&I payment of $2,306—not including taxes and insurance.
Source: Black Knight
That average P&I payment has gone up 60% (+$871) over the past two years and is the highest on record. And given recent rate increases, it will likely rise even higher.
Over half of July home purchase originations had a monthly payment of more than $2,000—up from just 18% in 2021. Almost a quarter (23%) have payments of more than $3,000—up from just 5% in 2021.
Source: Black Knight
On Wednesday’s episode of the Hot Sheet (9/6/23), Byron Lazine offered a different perspective on the data for real estate agents.
We would expect mortgage applications to decrease this time of year. The seasonality tells us historically that mortgage applications should decline, so I’m not worried about this…Here’s where we’re at—lowest level since 1996. It makes sense going into this year. It’s why I’ve been saying, ‘Hey, Q3 and Q4 of 2023 are going to potentially be harder than 2022.’ Now, don’t worry too much. We’re in the fourth-highest year in the last 20 years for commission-earning opportunities…You have the fourth easiest market to earn commissions in—higher commissions than the last 20 years. So, you can look at this data a number of different ways.
The impact of rising rates on HELOCs and refinance packages
Aside from home purchase affordability, rising mortgage rates are also impacting how much equity homeowners are withdrawing from their mortgaged homes—and by what means.
That’s up a tick from the first quarter, but still only half the volume of Q1 2022 ($79 billion) before mortgage rates started climbing.
Source: Black Knight
For context, mortgage holders withdrew an average 0.92% of available tappable equity each quarter from 2010 to 2021. Over the past three quarters, that share has dropped to just 0.4%, bringing equity withdrawals down by roughly 55%.
Put another way, since rates started climbing roughly 15 months ago, almost $200 billion in equity that might otherwise have been withdrawn and put to use within the broader economy has remained untapped.
Read the full report for more details. And tune into the Hot Sheet for the daily hot take on market updates like this one.
Takeaways for real estate agents
If you’ve been watching the Hot Sheet (every weekday the markets are open), you’re probably not surprised by the drop in purchase mortgage originations—or by the increase in monthly mortgage payments.
The fact is, despite both those trends, buyers are still out there looking for homes, and homeowners looking to sell won’t all have the luxury of waiting for rates to go down. What you can do for both is to help them clearly understand their options so they can choose what’s best for them right now, even if it’s not what they were originally planning to do.
Real estate is a long game. Be the agent your clients can trust to help them make the right move at the right time for them.
