Lawler: The Sharp increase in Monthly Payments in Selected Metro Areas
A table Showing the Increase in Monthly Payments for 37 Metro Areas and the United States
The first section and table are from housing economist Tom Lawler:
According to Mortgage News Daily, the interest rate on a 30-year fixed-rate mortgage for a prime borrower putting 20% down increased to 5.45% earlier this week from 3.14% a year ago. Such an increase would result in a 31.6% jump in the monthly principal and interest (P&I) payment on a mortgage with a fixed dollar amount. However, the increase in the monthly P&I payment for a typical home bought today compared to a year ago would be massively higher than 31.6%, as home prices nationally are up by over 20% from a year earlier, and by much more in many markets. In addition, that means a 20% down payment has risen sharply as well.
Below is a table showing the year-over-year increase in a 20% down payment and the P&I payment for a 30-year FRM for the US and for several metro areas on a “typical” single-family home. I used the Zillow HVI NOT because it is the “best” price measure but because it has dollar values, and it is not just an index. Note, though, that the Zillow HVI is an estimate of the price of the SF housing stock, and NOT of the price of homes actually purchased over any given period.
While obviously not everyone puts 20% down, and not everyone uses 30-year fixed-rate mortgage financing, it seems hard to believe that recent price and rate moves won’t have a sizable negative impact on housing activity over the next few quarters.
20% Down Payment and Monthly P&I Payment on Zillow Home Value Index
Some 1978 to 1981 Data
And this is from the archives (courtesy David Arbit, Director of Research at the Minneapolis Area REALTORS® and NorthstarMLS). This shows how rapidly Principal and Interest payments increased in the 78' to '81 period. That is probably the closest period to today (demographics, inflation, rising rates, lending, etc). See: Housing: Don't Compare the Current Housing Boom to the Bubble and Bust, Look instead at the 1978 to 1982 period for lessons)
For example, for the United States, P&I payments increased 31% from 1978 to 1979, and 81% from 1978 to 1980 (over 2 years). According to Lawler’s calculations, P&I has increased 59% in the United States in just the last year.
It is not the absolute mortgage rate, rather the change in monthly payments that is causing the slowdown in the housing market.