SEATTLE, June 21, 2018 /PRNewswire/ -- The combination of
rising rates and strong home value appreciation led to one
of the largest recorded quarterly increases in the mortgage
burden for homebuyers since the Great Recession.
In the first quarter of 2018, the share of median income needed
for monthly mortgage payments on the median U.S. home increased to
17.1 percent, up from 15.9 percent in the fourth quarter of 2017,
according to Zillow®'s latest affordability report. This was the
second biggest quarterly increase in the mortgage burden since the
housing market collapsed in 2007. In the fourth quarter of 2016,
the share of income needed for mortgage payments increased from
14.1 percent to 15.6 percent.
Throughout the housing market recovery, low mortgage rates
helped sustain housing affordability, even as home values climbed
to new peaks. But mortgage rates increased sharply to start the
year, rising nearly 50 basis points in the first three months, and
affordability is waning as a result.
Mortgage payments haven't taken up such a large share of the
median income since the second quarter of 2009, when monthly
housing costs for the typical U.S. home required 17.5 percent of
the median income, and mortgage rates were well above 5
percent.
As home values recovered following the Great Recession, wages
rose much more slowly. The price-to-income ratio has stayed the
same or increased each quarter since Q1 2012, a sign of home price
increases outpacing income growth. In Q1 2018, the median U.S. home
was worth 3.54 times the typical household income. From 1985 to
2000, the average home was worth 2.78 times the median income.
"For the past few years, historically low mortgage rates
provided the silver lining for buyers as prices rose higher and
higher," said Zillow Senior Economist Aaron
Terrazas. "If you were able to come up with a down payment,
the low rates kept monthly housing costs relatively affordable in
most parts of the country. Now, though, as rates are on the rise
and home values are climbing at their fastest pace in 12 years,
that affordability edge is getting thinner. In markets that have
seen some of the biggest increases in home values, housing costs
already take up a larger share of income than they did
historically, making it all the more difficult for buyers."
In nine of the 35 largest housing markets, mortgage payments are
already a bigger financial burden than they were historically.
Seven are along the West Coast, led by San Jose, Calif., where mortgage payments for
the median home increased from their historic average of 35.8
percent to 51.2 percent of the median income, the highest required
in any of the top metros.
If mortgage rates reach 5 percent next year, as many economists
expect, home shoppers in an additional seven markets would face
greater mortgage burdens than buyers did historically, including
Sacramento, Orlando and Tampa.
Metropolitan
Area
|
Share of
Income Spent On Mortgage
(1985-2000)
|
Share
of Income Spent
On Mortgage (Q1 2018)
|
Share of
Income Spent On Mortgage
(1-Year Forecast at 5% Rate)
|
United
States
|
21.1%
|
17.1%
|
19.0%
|
New York,
NY
|
29.0%
|
27.7%
|
30.9%
|
Los Angeles-Long
Beach-Anaheim, CA
|
34.5%
|
44.9%
|
49.8%
|
Chicago,
IL
|
23.1%
|
15.2%
|
16.9%
|
Dallas-Fort Worth,
TX
|
23.7%
|
16.5%
|
18.7%
|
Philadelphia,
PA
|
20.3%
|
16.0%
|
17.7%
|
Houston,
TX
|
21.1%
|
14.9%
|
16.6%
|
Washington,
DC
|
22.2%
|
19.4%
|
21.5%
|
Miami-Fort
Lauderdale, FL
|
20.3%
|
24.5%
|
27.1%
|
Atlanta,
GA
|
18.5%
|
14.9%
|
16.8%
|
Boston, MA
|
26.6%
|
25.5%
|
28.3%
|
San Francisco,
CA
|
38.5%
|
43.9%
|
49.4%
|
Detroit,
MI
|
16.2%
|
12.2%
|
13.5%
|
Riverside,
CA
|
27.6%
|
28.1%
|
31.9%
|
Phoenix,
AZ
|
21.5%
|
19.9%
|
22.0%
|
Seattle,
WA
|
25.9%
|
27.2%
|
31.3%
|
Minneapolis-St. Paul,
MN
|
17.8%
|
16.2%
|
18.1%
|
San Diego,
CA
|
33.4%
|
37.7%
|
42.2%
|
St. Louis,
MO
|
17.0%
|
12.4%
|
13.7%
|
Tampa, FL
|
18.7%
|
18.2%
|
20.6%
|
Baltimore,
MD
|
21.6%
|
15.8%
|
17.6%
|
Denver, CO
|
22.6%
|
25.1%
|
28.0%
|
Pittsburgh,
PA
|
13.7%
|
11.3%
|
12.5%
|
Portland,
OR
|
22.0%
|
25.8%
|
28.4%
|
Charlotte,
NC
|
19.4%
|
14.9%
|
16.6%
|
Sacramento,
CA
|
29.1%
|
28.7%
|
32.4%
|
San Antonio,
TX
|
22.2%
|
15.1%
|
16.7%
|
Orlando,
FL
|
20.7%
|
19.8%
|
22.6%
|
Cincinnati,
OH
|
18.3%
|
12.0%
|
13.2%
|
Cleveland,
OH
|
19.5%
|
12.4%
|
13.6%
|
Kansas City,
MO
|
17.2%
|
13.4%
|
14.8%
|
Las Vegas,
NV
|
26.7%
|
22.0%
|
25.0%
|
Columbus,
OH
|
18.8%
|
13.8%
|
15.2%
|
Indianapolis,
IN
|
22.2%
|
12.2%
|
13.6%
|
San Jose,
CA
|
35.8%
|
51.2%
|
60.6%
|
Austin, TX
|
28.9%
|
18.8%
|
20.8%
|
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
great real estate professionals. In addition, Zillow operates an
industry-leading economics and analytics bureau led by Zillow
Group'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