Housing Affordability Dips to 15-Year Low as Mortgage Rates Soar

Mortgage payments are higher than rental costs in 45 of the 50 largest U.S. metros following the Fed’s most recent rate hike last week, causing a steep drop in buyer demand across the country, Zillow reports. Mortgage rates averaged 5.78% last Thursday, sending monthly payments to $2,127 for the typical U.S. home, a 51% year-over-year gain significantly outpacing income growth nationwide.

Monthly payments currently account for 28% of the typical homeowner’s monthly income, making renting a more affordable option for the majority of Americans.

Incomes are lagging further behind fast-rising mortgage costs, leading to the most significant affordability challenges in the past 15 years. The latest affordability data available from April shows monthly payments taking about 28% of homeowners’ monthly income — dangerously close to the 30% threshold, beyond which is considered a cost burden. Zillow data for this metric is available through 2007; the Atlanta Federal Reserve’s Home Ownership Affordability Monitor shows affordability bottoming out in July 2006.

Although rents have soared since the start of 2021, the rapidly rising cost of a mortgage still makes rent the cheaper option nearly everywhere. A typical rent payment in May is more expensive than a mortgage payment (with a 20% down payment), including taxes and insurance, in just five of the 50 largest U.S. metros. In May 2019, rent was more expensive in 28 of those metros.

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