Since home prices for the Twin Cities metro have fully recovered and then some, it’s tempting (and even somewhat logical) to assume that monthly mortgage payments are also at all-time highs. That assumption would be entirely inaccurate. But it makes so much sense! If the median home price is at an all-time high, the monthly mortgage payment on that median priced home must therefore also be at an all-time high. Nope. Still false.
What this assumption fails to account for is of course mortgage or interest rates. The last time prices were this high, in 2006, the 30-year fixed mortgage rate was about 6.5 percent. In 2017, rates are averaging around 4.0 percent. That’s where this all-too-common assumption falls flat on its face.
The monthly payment on the median-priced home in 2006 was $1,715, but is only $1,498 in 2017, thanks to rates being 2.5 percentage points lower (6.5 vs 4.0). The median home price, however, has now reached $247,000 compared to $230,000 in 2006. So while affordability has declined since 2012, it still remains above 2004-2007 levels. In other words, despite prices being higher today than in 2006, monthly payments on purchased homes are still below where they were during the housing bubble.