COVID-19’s impact on monthly mortgage payments

Mar 23, 2020

The housing market entered 2020 with momentum, but fear has a way of deferring choices. As an industry, we need to educate buyers. Ali Wolf, provides the numbers your team should know about dropping mortgage rates and the resulting monthly payment.

Sentiment drives behavior and today’s economy is handing consumers things to be concerned about, whether that’s panic from seeing empty shelves at the grocery store to volatility in the stock market. We can, however, use the current environment in our favor. Rates are down roughly 75 basis points compared to this time last year and that means big savings for home buyers.

We broke out the savings to consumers in three different ways*:

Monthly payment difference. In top markets across the country, consumers got between $100 and $400 a month back due to lower mortgage rates. This change reflects that while home prices are high, monthly payments create a compelling case against the for-rent market and help shoppers on the margin afford a home.
Price cut equivalent. Consumers have been looking for a ‘deal’ ever since the fire sale of housing in the second half of 2018. Today’s low mortgage rates represent the equivalent of a $20,000-$80,000 price cut depending on market year-on-year.
Monthly payment equivalent to past years. Affordability has and will continue to be a top issue for the housing market. In some metros, however, the change in mortgage rates is enough to turn back time. When looking at today’s home prices and mortgage rates compared to the respective data of prior years, we see some markets like Los Angeles, Washington, DC, and Houston are hitting levels of affordability not seen in at least six years.

We have an in-house database that helps track real-time activity for select new home markets across the country. These sales and traffic stats show a mixed result to today’s fear versus affordability dilemma:

Traffic is positive on a year-over-year basis, capturing the early and strong start to the spring selling season. In fact, the four-week average for traffic was at the highest level since April 2018.
Traffic pulled back notably week-over-week**, however, on both a total and adjusted per community basis. The recent pullback in traffic captures the start of the stock market selloff and the accompanying weekend of uncertainty. The pullback puts housing traffic back to levels seen three weeks ago.

Traffic numbers will likely fall even further in the coming week on the heels of the recent and severe volatility in the stock market. The monthly payment savings should be played up to help with conversions by building the case for homeownership.

Let's discuss the changing economic climate

*based on the median-priced single-family detached new home

**compares data from the week ending February 23rd to the week ending March 1st