Lower-end homes remain most impacted by rate rises

by Steve Randall06 Mar 2018

Homes at the lower end of the market are most impacted by rising interest rates according to a new analysis from Black Knight Financial.

In its monthly mortgage report, the firm looked at data from the end of January 2018 and found that affordability is better than long-term averages nationwide.

However, for those homes in the lower 20% of prices, affordability is weakening as prices continue to appreciate faster than other tiers. The data shows it is at its lowest point since 2009.

“The annual rate of appreciation for these homes is 1.9% higher than the market average, and more than 3.6 % higher than that of properties in the top 20% of prices,” commented Black Knight Data & Analytics Executive Vice President Ben Graboske.

He added that while low interest rates have helped offset the effect of the median home price rising 50% in the past 15 years, compared to a 40% rise in median income; lower income households have seen less growth in their income, making even lower-end homes less affordable.

It takes 23% of median income to afford a median-priced home, 1.9% below historical averages from 1995-2003, but Graboske points out that those on lower incomes are closer or above those longer-term averages.

“It seems evident that further affordability reductions from rising interest rates could put more pressure on lower-income buyers by increasing competition for lower priced homes, as borrowers’ overall buying power is diminished,” he said.


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