SEATTLE, March 13, 2018 /PRNewswire/ -- The years of
historically affordable mortgage rates look to be ending as rates
have steadily increased in recent months and show no signs of
turning back.
Since the beginning of the year, mortgage rates have increased
nearly 50 basis points. Historically low mortgage rates have been
the silver lining in today's competitive housing market, keeping
monthly payments relatively affordable even as home prices reached
new peaks.
At the end of 2017, mortgage payments on the typical U.S. home
required 15.7 percent of the median income, according to
Zillow®'s Q4 2017 affordability analysis. In the late
1980s and 1990s, mortgage payments took up 21 percent of the
typical income.
If mortgage rates reach 6 percent next year, near the upper end
of forecasters' expectations, the share of income needed to cover
monthly housing costs on the median U.S. home will be 20.5 percent,
nearly the historic norm of 21 percent. But in several large U.S.
markets, including San Jose,
California, Los Angeles and
Miami, mortgage payments already
take up a larger share of income than they did historically. In
San Jose, the share of income
needed for mortgage payments increased from 36 percent historically
to 46.1 percent at the end of 2017. Combined with record-high home
prices, housing affordability is already suffering in these markets
and will only worsen as rates climb.
An additional side effect of higher mortgage rates will be felt
in housing inventory, as some homeowners with lower mortgage rates
may hesitate to sell their homes and take out a new home loan with
a higher rate. Most home shoppers can absorb modest increases in
mortgage rates, but once rates begin to approach their historic
levels, they will eat into housing affordability for buyers and
could limit the number of homes for sale as well. Inventory has
fallen on an annual basis for 36 consecutive months, so any factors
that further limit inventory will be a strain on the market.
"For nearly a decade now, homebuyers have been buoyed by
historically low mortgage rates that made buying a home more
affordable than it was for prior generations, but tomorrow's buyers
may not be so lucky," said Zillow Senior Economist Aaron Terrazas. "Rates are showing a clear
upward trend, bringing an end to an era of historically affordable
mortgage payments. Bigger life considerations typically take
precedence in the decision to move, but some homeowners who locked
in a lower mortgage rate may look to alternatives like renovating
their current home instead of becoming a buyer in a stressful,
competitive market when higher rates would limit their buying power
below what it was when they bought their current home."
Renting doesn't provide much relief as an alternative to home
buying. The typical U.S. rental payment requires 28.9 percent of
the median income. In 14 large U.S. metros, rent takes up more than
30 percent of the median income, widely considered the standard for
unaffordable housing costs.
Metropolitan
Area
|
% Income
Spent On
Mortgage
Payments
|
Historic
Income
Spent On
Mortgage
Payments
(1985-
2000)
|
Forecast
% Income
Spent On
Mortgage
Payments
(4% Rate)
|
Forecast
% Income
Spent On
Mortgage
Payments
(5% Rate)
|
Forecast
% Income
Spent On
Mortgage
Payments
(6% Rate)
|
Forecast
% Income
Spent On
Mortgage
Payments
(7% Rate)
|
%
Income
Spent
On Rent
|
United
States
|
15.7%
|
21.0%
|
16.3%
|
18.3%
|
20.5%
|
22.7%
|
28.9%
|
New York,
NY
|
26.3%
|
29.7%
|
27.2%
|
30.5%
|
34.1%
|
37.8%
|
38.8%
|
Los Angeles-Long
Beach-Anaheim, CA
|
41.6%
|
35.2%
|
43.0%
|
48.4%
|
54.0%
|
59.9%
|
47.3%
|
Chicago,
IL
|
14.3%
|
22.8%
|
14.7%
|
16.5%
|
18.4%
|
20.5%
|
29.0%
|
Dallas-Fort Worth,
TX
|
15.1%
|
20.4%
|
15.9%
|
17.9%
|
20.0%
|
22.2%
|
29.0%
|
Philadelphia,
PA
|
14.8%
|
20.0%
|
15.4%
|
17.3%
|
19.3%
|
21.4%
|
27.7%
|
Houston,
TX
|
13.4%
|
15.3%
|
14.0%
|
15.7%
|
17.6%
|
19.5%
|
29.4%
|
Washington,
DC
|
17.8%
|
22.3%
|
18.0%
|
20.2%
|
22.6%
|
25.1%
|
25.9%
|
Miami-Fort
Lauderdale, FL
|
22.7%
|
20.0%
|
22.9%
|
25.7%
|
28.7%
|
31.9%
|
42.1%
|
Atlanta,
GA
|
13.2%
|
19.1%
|
13.9%
|
15.6%
|
17.4%
|
19.4%
|
25.9%
|
Boston, MA
|
23.5%
|
26.2%
|
24.4%
|
27.5%
|
30.7%
|
34.1%
|
33.4%
|
San Francisco,
CA
|
40.6%
|
38.3%
|
42.9%
|
48.3%
|
53.9%
|
59.9%
|
39.9%
|
Detroit,
MI
|
11.3%
|
16.6%
|
11.7%
|
13.2%
|
14.7%
|
16.3%
|
24.6%
|
Riverside,
CA
|
25.6%
|
26.5%
|
27.0%
|
30.4%
|
33.9%
|
37.6%
|
36.7%
|
Phoenix,
AZ
|
18.5%
|
21.3%
|
19.0%
|
21.4%
|
23.8%
|
26.5%
|
26.9%
|
Seattle,
WA
|
24.9%
|
25.2%
|
26.3%
|
29.6%
|
33.1%
|
36.7%
|
30.9%
|
Minneapolis-St Paul,
MN
|
15.1%
|
18.4%
|
15.6%
|
17.6%
|
19.6%
|
21.8%
|
26.1%
|
San Diego,
CA
|
34.7%
|
34.1%
|
36.2%
|
40.7%
|
45.4%
|
50.4%
|
41.2%
|
St. Louis,
MO
|
11.1%
|
16.1%
|
11.5%
|
12.9%
|
14.4%
|
16.0%
|
22.2%
|
Tampa, FL
|
16.7%
|
18.7%
|
17.3%
|
19.4%
|
21.7%
|
24.1%
|
30.8%
|
Baltimore,
MD
|
14.9%
|
21.4%
|
15.1%
|
17.0%
|
19.0%
|
21.1%
|
26.0%
|
Denver, CO
|
22.9%
|
21.9%
|
23.7%
|
26.7%
|
29.8%
|
33.1%
|
32.4%
|
Pittsburgh,
PA
|
10.9%
|
15.5%
|
11.2%
|
12.6%
|
14.1%
|
15.6%
|
21.6%
|
Portland,
OR
|
23.6%
|
22.5%
|
24.8%
|
27.9%
|
31.1%
|
34.5%
|
31.3%
|
Charlotte,
NC
|
13.4%
|
18.3%
|
13.9%
|
15.7%
|
17.5%
|
19.4%
|
24.8%
|
Sacramento,
CA
|
26.0%
|
28.6%
|
27.2%
|
30.6%
|
34.2%
|
37.9%
|
33.0%
|
San Antonio,
TX
|
13.2%
|
17.7%
|
13.8%
|
15.5%
|
17.3%
|
19.2%
|
27.7%
|
Orlando,
FL
|
18.1%
|
20.4%
|
19.0%
|
21.4%
|
23.9%
|
26.5%
|
31.1%
|
Cincinnati,
OH
|
11.4%
|
19.3%
|
11.8%
|
13.3%
|
14.9%
|
16.5%
|
24.6%
|
Cleveland,
OH
|
11.6%
|
20.0%
|
12.0%
|
13.4%
|
15.0%
|
16.7%
|
25.5%
|
Kansas City,
MO
|
11.9%
|
20.1%
|
12.4%
|
13.9%
|
15.6%
|
17.3%
|
24.1%
|
Las Vegas,
NV
|
19.9%
|
25.9%
|
21.2%
|
23.8%
|
26.6%
|
29.5%
|
27.4%
|
Columbus,
OH
|
12.5%
|
20.0%
|
13.0%
|
14.6%
|
16.3%
|
18.1%
|
25.5%
|
Indianapolis,
IN
|
11.0%
|
20.8%
|
11.5%
|
12.9%
|
14.4%
|
16.0%
|
24.7%
|
San Jose,
CA
|
46.1%
|
36.0%
|
50.4%
|
56.7%
|
63.3%
|
70.2%
|
36.3%
|
Austin, TX
|
17.2%
|
18.9%
|
17.9%
|
20.1%
|
22.5%
|
24.9%
|
27.3%
|
Zillow
Zillow is the leading real estate and rental marketplace dedicated
to empowering consumers with data, inspiration and knowledge around
the place they call home, and connecting them with the best local
professionals who can help. In addition, Zillow operates an
industry-leading economics and analytics bureau led by Zillow's
Chief Economist Dr. Svenja Gudell.
Dr. Gudell and her team of economists and data analysts produce
extensive housing data and research covering more than 450 markets
at Zillow Real Estate Research. Zillow also sponsors the quarterly
Zillow Home Price Expectations Survey, which asks more than 100
leading economists, real estate experts and investment and market
strategists to predict the path of the Zillow Home Value Index over
the next five years. Launched in 2006, Zillow is owned and operated
by Zillow Group, Inc. (NASDAQ:Z and ZG), and headquartered in
Seattle.
Zillow is a registered trademark of Zillow, Inc.
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SOURCE Zillow