Plummeting mortgage rates afford buyers $32,000 more house

As mortgage rates fluttered above and below 3% in July, homebuyers received their biggest boost in affordability in three-and-a-half years, according to Black Knight.

Purchasing power rose 10% year-over-year despite 97 straight months of annual housing price increases. With interest rates hitting record lows, buyers were able to afford $32,000 "more house" as of July 23 than they could the year before with the same monthly payment.

Purchasing the average-priced home in mid-July required $1,071 per month — assuming a 20% down payment and a 30-year loan — or 19.8% of the nation's median income. This compares to 21.3% the year prior and an average of 25% between 1995 and 2003.

"Falling rates and improved affordability have helped to spur home-buying demand, and therefore purchase origination volume, which has provided a much-needed backstop for home prices in the wake of the COVID-19 pandemic," Ben Graboske, president of Black Knight's data and analytics division, said in a press release.

Across the country, buying the average-priced home reached the most affordable level since late 2016, with a handful of states — Arkansas, Iowa, Kentucky, Louisiana, Maryland and West Virginia — becoming their most affordable since before 1995.

"A main takeaway from this month’s report is that while record levels of job losses are certainly still weighing on the housing market and broader economy, for those shopping for a home now, buying power has clearly trended up," said Graboske.

Rates falling below 3% incentivized a record 18.1 million qualified homeowners to refinance. That number would expand to 19.5 million borrowers if rates hit 2.875%. About 15.6 million met the underwriting criteria when rates went to 3.01% on July 23. Those considered qualified are current on their mortgage, will gain at least 75 basis points through refi, have a maximum 80% loan-to-value ratio and a 720-plus FICO score.