Owners Pay More For A Mortgage

House payments continue to chew up more of homeowners’ paychecks. According to a Zillow analysis of mortgage and rent affordability, the monthly mortgage payment for the typical U.S. home was $758 as of the end of last year, a $68 increase from 2015. In terms of payments as a share of the median household income, owners spent 15.8 percent of their earnings on their mortgage in 2016, up from 14.7 percent the year before.

While mortgage rates are creeping higher, increasing from around 3.5 percent in October 2016 to above 4 percent in February, the primary cause of the payment increase stems from home value appreciation. Zillow estimates that home appreciation accounts for $47 of the increase. Mortgage rates, however, are expected to steadily increase this year, and the Federal Reserve is slated to raise its key interest rate three or four times in 2017.

Several locales are more hamstrung than others, especially those in California’s largest markets. Typically, homeowners in Los Angeles, San Francisco, and San Jose spend more than 40 percent of their income on mortgage payments. San Diego is only marginally better, at 35 percent.

Zillow’s findings may represent the end of a relatively economically friendly era for homeowners, rather than a shift toward homes being unaffordable. The current 15.8 percent rate of income put toward a mortgage is significantly lower than the 21 percent average between 1985 and 2000. Except for the big California markets, homeowners in most cities around the country, from Phoenix to Chicago to Philadelphia, have mortgage payments that account for a smaller share of their income today than they did at the turn of the last century.

Rent affordability is slightly different, as the average renter today spends 29.2 percent of his or her income on housing, up from the 25.8 percent that renters paid in 1985 to 2000. Rents have remained flat over the last year, however. In 2015, typical renters spent 29.4 percent of their income on housing.

“On the rental side, rent appreciation has slowed lately, giving renters’ incomes a chance to catch up, as many are already committing a larger share of their income to a monthly rental payment,” Zillow chief economist Dr. Svenja Gudell said in a statement.