The average interest rate on the 30-year fixed mortgage moved from around 3.5 percent to as high as 4.25 percent in the weeks following Donald Trump's election, thanks to a huge sell-off in the bond market. That pushed the average cost of a home higher by more than $16,400 "almost overnight," according to researchers at Black Knight Financial Services. It now takes 21.6 percent of the median income to buy the median priced home, the highest share since June 2010.
"The last time affordability ratios came close to this point (back in 2013 after a sharp rise in rates), there was an immediate reaction in terms of home price appreciation," said Ben Graboske, vice president of Black Knight Data & Analytics. "They didn't fall, but the rate at which they had been rising was basically cut in half, from 9 percent annually to less than 5 percent in a matter of months."
The difference today, however, is that the supply of homes for sale is so low that fierce competition is keeping high pressure on prices. The supply problem may even be exacerbated by rising rates because homeowners who might have wanted to move will be dissuaded by the fact that they'll have to give up the record-low rates they locked in during the refinance boom of the last few years.
"This will be an interesting balancing act in the market over the coming months, even more so given our recent research which showed that borrowers with low fixed interest rates are less likely to list their homes for sale," Graboske said.