The principal and interest (P&I) payment needed to buy a median-priced home in the U.S. has grown to more than $2,500 for the first time ever, according to the November Mortgage Monitor Report from Intercontinental Exchange (ICE).
The typical monthly P&I payment rose $144 to cross that threshold. It now takes 40.6% of the median household income to cover monthly P&I, a vast leap from the average of less than 25% over the past 35 years.
With the exception of a single day in October, interest rates spent all of last month above 7.5%. They topped out at 7.8% on Oct. 25, according to ICE’s index for conforming, 30-year fixed-rate mortgages.
“Mortgage rates haven’t been that high in 23 years, which continues to hammer affordability,” said Andy Walden, ICE vice president of enterprise research. “The situation was already dire, but recent weeks have seen rates climb to where it now takes nearly 41% of the median monthly income just to make the P&I payment needed to purchase the median-priced home.”
Sky-high rates have obliterated the refi market, according to Walden.
“The rate-and-term refinance market is essentially nonexistent today,” he said. “In fact, the refinance market in general is but a shadow of what it once was. There are pockets of cash-out lending occurring among a particular set of borrowers, but even that has been a niche market. Given that homeowner equity has risen alongside home prices and is now within 2% of the peaks we saw in 2022, it makes sense that cash-outs would still appeal to some borrowers.”
The one-two punch of elevated rates and ballooning home prices is making for difficult borrowing conditions.
“Historically tight inventory levels have been further bolstering prices, which hit yet another all-time high in September, with the annual growth rate accelerating to 4.3% from effectively flat just four months before,” Walden said. “That said, the pace of monthly gains slowed to 0.39% in September, marking the smallest seasonally adjusted gain since January.”
The last time affordability was comparably out of reach was during the 1980s, when interest rates were in the double digits and the average home cost about 3 1/2 times as much as the median income. Today’s ratio of home prices to median income, in comparison, stands at almost 6 to 1.
Walden was swift to note that the record-high monthly payment doesn’t even factor in taxes, insurance or homeowners association fees.
Rates have risen another 75 basis points since September’s closed sales, a shift that has slashed another 8% from consumer buying power, according to ICE. With rates expected to stay higher for longer, Walden said that it’s “fair” to expect some softening of home prices later in the year.