The unappetizing combo of historically high home prices and elevated interest rates has led to a spike in monthly mortgage costs, cementing principal and interest (P&I) payments as the post-pandemic norm, according to Black Knight’s new Mortgage Monitor report.
July saw the average monthly P&I payment on a 30-year fixed-rate mortgage climb to $2,306, the highest level ever. And that’s even before taxes and insurance are added; their inclusion would tack on another $550 a month, on average.
While home seekers in pricey areas like New York, Los Angeles, the San Francisco Bay Area and Seattle likely wouldn’t bat an eye at such monthly averages, P&I payments north of $2,000 are a relatively recent development for most of the country. Monthly P&I payments have skyrocketed by more than 60% in the past two years. Consider that in July, more than half of purchase originations had P&I payments higher than the $2,000 threshold. Just two years ago, that share stood at only 18%.
Moreover, nearly one-quarter of those purchase originations had P&I payments averaging more than $3,000 per month. In 2021, just 5% of purchase originations included monthly payments above that level.
“We’ve been talking about affordability for quite some time now, but this puts the situation in stark relief,” quipped Andy Walden, Black Knight’s vice president of enterprise research.
But rates aren’t just making an impact on prospective homebuyers, Walden noted.
“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,” he observed. “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.”
From 2010 to 2021, mortgage holders extracted just under 1% of their available equity each quarter, per Black Knight’s data. But that figure has dipped to 0.4% over the past three quarters, marking a drop in equity withdrawals of approximately 55%. It’s a development that Walden also attributed to the rising rate environment.
“In essence, over the last 15 months, there’s been nearly $200B less equity withdrawn – and reinjected into the broader economy – than might otherwise have been, due in large part to elevated interest rates,” Walden noted.