Real Estate

Trump effect: That house you want got $16,000 more expensive since he won

The sharp jump in mortgage interest rates following the November election is not only holding on but gaining. Add that to an already uneven housing recovery, and the resulting numbers are staggering.

Housing affordability was already weakening, thanks to fast-rising home prices, which has made it the least affordable time to buy a house since the Great Recession.

Prospective home buyers tour a house for sale with their realtor in Machinaw, Illinois.
Daniel Acker | Bloomberg | Getty Images

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.

Housing affordability is still below the historical norm, which is when the cost of total monthly payments is about 24 percent of income, but that percentage is likely to rise more quickly in the next year, as prices are already now higher than they were during the peak of the last housing boom in 2006.

Interest rates are expected to move even higher in the next few months, but even if they were to stay exactly where they are today, and home prices rise at the rate they have been, income levels would have to rise by about 5 percent annually, which is possible but unlikely, just to maintain the current level of affordability throughout 2017, according to Black Knight.

In addition to housing affordability, a huge swath of current homeowners who either didn't or couldn't take advantage of record low interest rates over the last few years, are now out of the running for those monthly savings. About 4.3 million borrowers can no longer benefit from a refinance, bringing the total refinanceable population to a two-year low. Borrowers still have about $1 billion per month in potential savings on the table, but that's down from $2.1 billion before the election. Refinances fuel cash into the home improvement sector as well as other parts of retail, as homeowners use their extra cash for spending.