Monthly Mortgage Payments Hold Steady

Rising home prices had minimal effect on loan payment amounts 

10/31/2016

Monthly Mortgage Payments are Holding Steady

Given the red-hot market, it’s no surprise that home sale prices have trended higher over the past year.  The good news for buyers is that monthly home payments have risen very little -- only half as much as the rise in home sale values, according to the North Shore Bank / GMAR Home Affordability Report
The third-quarter report covers the 4,733 MLS-listed home sales that occurred in July, August and September in the Milwaukee area, with price ranges broken into thirds. It shows the median sale price of lower-end homes throughout the metro area was up 14% over a year earlier. But the median monthly payment on these homes rose by only 7% on average.

Mid-range and upper-end homes saw a less dramatic price increase of 8% on average, with monthly payments rising only 4%.

“The rise in home values has had minimal impact on monthly payments,” said North Shore Bank Senior Vice President Michael Kellman, who oversees consumer lending. “Continued low interest rates and the fact that the increase in the purchase price is stretched out over many years mean payments have tended to fluctuate less than prices.”

A few examples of the year-over-year changes:

  • In West Bend, where 181 homes were sold during the third quarter, the median price of a mid-range home was up $12,950 to $178,950 vs. $166,000 a year earlier. But the monthly payment associated with that home rose just $21 to $893.
  • Similarly in Menomonee Falls, where 191 homes were sold, the median price of a lower-end home was up $10,850 from $168,900 to $179,750. But the monthly payment rose just $3 to $876. (Payment calculations include local property taxes, which mean that even homes sold for the same price with identical loan terms can require different monthly payments.)
  • In Brookfield, where 206 homes were sold, the median price of a higher-end home was up just $3,200 at $418,200 vs. $415,000 a year earlier. The monthly payment actually dropped $24 to $2,032.
  • In Oak Creek, where 138 homes were sold, the median price of a mid-range home was up $22,000 to $220,000 from $198,000 a year earlier.  The monthly payment rose $76 to $1,159. 
A continuing lack of inventory and fierce competition among buyers – especially for appealing homes priced under $400,000 – are boosting values. But often, that just means prices are continuing to recover from the tumble they took when the so-called housing bubble burst.
 
Realtors say well-priced homes continue to attract multiple offers in many cases. Patty Weske, a longtime Shorewest agent, said she has greatly increased her use of an “escalator clause” with offers made by buyers who are concerned about being out-bid. The clause essentially says that while the offer is for a certain amount, the buyer is willing to go higher if necessary – up to a specified sum – if the seller receives a higher competing offer.
 
“I’ve probably used escalator clauses three times more this year than ever before,” said Weske. “It’s a wonderful tool in a competitive market for buyers who have their hearts set on a home.”
 
First Weber agent Cindi Seefeldt said the inventory shortage may be due to a circular problem: People who are ready to sell their current home and buy a new one are hesitant to list because there aren’t enough homes on the market for them to feel confident they will find a place they love. But if they start shopping for a new home before selling theirs and include a home-sale contingency in their offer, they will typically lose out to a cleaner offer.
 
People are starting to get more comfortable making no-strings offers even if they haven’t listed their home yet, if they are financially able, Seefeldt added.  In many cases, they can list and find a buyer for their existing home after their offer on the new home is accepted and before they close on it, she said.
 
In addition to making an offer as clean as possible, North Shore Bank’s Kellman emphasized that a solid pre-approval letter from a mortgage lender should accompany the offer. “You need to make sure you’re getting a letter from an institution that will stand behind it,” he said. While pre-approval letters typically are not iron-clad guarantees, some are much more reliable than others, he noted. “I can count on one hand without using all my fingers the number of cases in a year where someone gets a pre-approval letter from us and it doesn’t hold up.” In those rare cases, the snag is almost always that the bank is unable to verify the income the customer used for the pre-approval, he said.

Most of North Shore’s mortgage shoppers are choosing fixed-rate loans since rates are at historic lows. A growing number, especially those who are refinancing, have opted for shorter terms since the money they save on a lower interest rate can make a faster payoff schedule more affordable, Kellman said. “If they can afford it, they’re trying to reduce the term of their loans. A lot of times, they’re able to refinance, say, a 24-year remaining term down to 17 and their payment goes up just $50,” he said. “They can save tens of thousands of dollars by cutting six years off their mortgage. “

Related Blog Posts

Recent Happenings from February 2016

Branch activities and community events Full story...

Holiday Shopping on a Budget

9 Tips to limit what you spend on gifts this season Full story...

Racine County Chili Cook-off Benefiting the United Way [Photos]

Cooking to support a great cause Full story...
Blog posts RSS