SEATTLE, Oct. 29, 2020 /PRNewswire/ -- Monthly
mortgage payments are becoming increasingly affordable for U.S.
homeowners as mortgage rates have hit record lows, a new Zillow®
analysis shows. But that masks the difficulties would-be
buyers face in getting into homes in the first place after
extraordinary price growth has pushed prices further above incomes
than they've been in at least the past several years.
Homeowner households earning the median
incomei paid 17.5% of their earnings toward a
mortgage on the typical U.S. home in September, down from 19.6% two
years earlierii. That affordability improvement is
thanks to record-low mortgage rates, which have dipped as low as
2.8% this month, down from around 4.85% in October 2018iii.
While more affordable monthly payments are a benefit to millions
of homeowners nationwide, these rosy statistics obscure the effect
of soaring home prices that have outpaced incomes by an alarming
level in recent years. Saving for a down payment is a massive
financial barrier for potential buyers, especially first-time
buyers. More than a quarter of first-time buyers report
difficulties saving for a down payment, and 40% of all buyers rely
on a gift or loan from family or friends for at least part of their
down paymentiv.
That hurdle has gotten higher after home values have grown
38.3% since September 2014, while
homeowner incomes have grown just less than half that amount
(18.8%) over the same period. A typical U.S. home is now worth more
than three times the median annual homeowner income, the highest
it's been since at least 2014, when Zillow's analysis began. In
January 2014, the typical home was
worth about 2.6 times the median homeowner income.
Put another way, we can look at the difference in a 20% down
payment over the years. Putting 20% down on the typical home would
have taken about $36,600 at the start
of 2014, or 6.4 months of income for the median homeowner
household. Now, that would be a roughly $52,000 down payment, which is 7.5 months of
income. Zillow expects the typical U.S. home to appreciate by 7%
over the next year, which would bring that down payment up another
$3,600 to about $55,600. Nearly 40% of buyers with a mortgage put
at least 20% downiv, which allows a buyer to avoid
private mortgage insurance premiums.
"The path to homeownership, and the savings and wealth-creation
benefits that come with it, has gotten harder for many buyers,"
said Zillow senior economist Chris
Glynn. "Saving for a down payment is the single biggest
challenge many potential home buyers face, and it is especially
difficult when incomes fail to keep pace with home values. Even
still, many buyers sense that prices will slip further out of reach
in coming years and desperately want to lock in low mortgage rates
while they can, which is likely contributing to the urgency we're
seeing in the market. The current environment is a double win for
longtime homeowners who have enjoyed big equity gains and are now
able to refinance their mortgage to lower their monthly
payments."
Among the 50 largest U.S. metros, down payments are most in
reach for potential buyers in Cleveland, where a 20% down payment on the
typical home is equal to 5.1 months of income for the median
homeowner household. Milwaukee,
Pittsburgh and Memphis have the next most affordable homes by
this measure, each at 5.2 months of income. Homes are most
difficult to save for in high-priced California metros, led by San Francisco (17.1 months of income),
San Jose (16.1), Los Angeles (14.9) and San Diego (13.2).
At current rates, mortgage payments are most affordable in
Louisville (12.3% of income),
Birmingham (12.5%) and
Indianapolis (12.7%). They are the
most burdensome in San Francisco
(34.4%), San Jose (31.6%) and
Los Angeles (29.9%).
Had pre-pandemic trends held, renters were projected to spend
29.9% of their income on rent in September, the lowest share since
at least 2014. But because renters have been hit hard by income
loss during the coronavirus pandemic, it's likely the share is
considerably higher. The spread between rent and mortgage
affordability illustrates the financial benefits of
homeownership -- the ability to build equity, often while also
spending relatively less on monthly housing payments, is a key
avenue for building long-term wealth.
Metropolitan
Area*
|
Typical Home Value
- September 2020
|
Mortgage
Affordability - September 2020
|
Median Monthly
Homeowner Income - September 2020
Estimate
|
Estimated Monthly
Payment on Typical Home
|
United
States
|
$259,906
|
17.5%
|
$6,973
|
$1,217
|
New York,
NY
|
$497,090
|
23.9%
|
$9,923
|
$2,375
|
Los Angeles,
CA
|
$711,361
|
29.9%
|
$9,555
|
$2,854
|
Chicago,
IL
|
$253,512
|
16.4%
|
$8,149
|
$1,336
|
Dallas-Fort Worth,
TX
|
$270,907
|
17.7%
|
$8,288
|
$1,466
|
Philadelphia,
PA
|
$265,912
|
16.0%
|
$8,253
|
$1,317
|
Houston,
TX
|
$228,576
|
16.1%
|
$7,841
|
$1,261
|
Washington,
DC
|
$455,038
|
16.8%
|
$11,484
|
$1,934
|
Miami-Fort
Lauderdale, FL
|
$308,911
|
22.9%
|
$6,512
|
$1,491
|
Atlanta,
GA
|
$252,586
|
14.4%
|
$7,921
|
$1,137
|
Boston, MA
|
$520,206
|
22.4%
|
$10,463
|
$2,341
|
San Francisco,
CA
|
$1,113,664
|
34.4%
|
$13,031
|
$4,480
|
Detroit,
MI
|
$193,270
|
14.8%
|
$6,580
|
$973
|
Riverside,
CA
|
$404,320
|
23.8%
|
$7,358
|
$1,750
|
Phoenix,
AZ
|
$309,543
|
17.7%
|
$7,125
|
$1,264
|
Seattle,
WA
|
$555,689
|
23.0%
|
$10,221
|
$2,350
|
Minneapolis-St. Paul,
MN
|
$307,156
|
16.9%
|
$8,583
|
$1,448
|
San Diego,
CA
|
$632,264
|
26.7%
|
$9,597
|
$2,559
|
St. Louis,
MO
|
$188,845
|
13.5%
|
$6,901
|
$930
|
Tampa, FL
|
$236,574
|
19.1%
|
$5,978
|
$1,139
|
Baltimore,
MD
|
$307,675
|
15.0%
|
$9,076
|
$1,359
|
Denver, CO
|
$462,724
|
21.8%
|
$8,782
|
$1,911
|
Pittsburgh,
PA
|
$172,719
|
13.2%
|
$6,590
|
$867
|
Portland,
OR
|
$436,053
|
21.6%
|
$8,756
|
$1,893
|
Charlotte,
NC
|
$254,932
|
16.4%
|
$6,785
|
$1,115
|
Sacramento,
CA
|
$449,280
|
21.5%
|
$8,816
|
$1,896
|
San Antonio,
TX
|
$221,860
|
18.2%
|
$6,424
|
$1,171
|
Orlando,
FL
|
$266,724
|
17.9%
|
$7,001
|
$1,251
|
Cincinnati,
OH
|
$201,822
|
13.7%
|
$7,258
|
$990
|
Cleveland,
OH
|
$166,936
|
13.4%
|
$6,561
|
$880
|
Kansas City,
MO
|
$218,314
|
14.3%
|
$7,475
|
$1,070
|
Las Vegas,
NV
|
$302,133
|
17.8%
|
$7,035
|
$1,249
|
Columbus,
OH
|
$223,010
|
15.3%
|
$7,474
|
$1,147
|
Indianapolis,
IN
|
$199,477
|
12.7%
|
$7,210
|
$912
|
San Jose,
CA
|
$1,219,074
|
31.6%
|
$15,176
|
$4,797
|
Austin, TX
|
$365,091
|
19.4%
|
$9,566
|
$1,851
|
Virginia Beach,
VA
|
$257,117
|
15.3%
|
$7,373
|
$1,131
|
Nashville,
TN
|
$295,317
|
17.4%
|
$7,311
|
$1,273
|
Providence,
RI
|
$338,536
|
20.2%
|
$8,054
|
$1,623
|
Milwaukee,
WI
|
$200,213
|
13.2%
|
$7,749
|
$1,023
|
Jacksonville,
FL
|
$242,663
|
16.6%
|
$6,779
|
$1,128
|
Memphis,
TN
|
$165,614
|
12.9%
|
$6,316
|
$812
|
Oklahoma City,
OK
|
$170,113
|
13.5%
|
$6,327
|
$851
|
Louisville,
KY
|
$190,184
|
12.3%
|
$7,054
|
$867
|
Hartford,
CT
|
$246,266
|
15.4%
|
$8,482
|
$1,309
|
Richmond,
VA
|
$259,290
|
15.1%
|
$7,318
|
$1,108
|
New Orleans,
LA
|
$215,442
|
17.2%
|
$5,902
|
$1,013
|
Buffalo,
NY
|
$186,292
|
15.0%
|
$6,914
|
$1,038
|
Raleigh,
NC
|
$299,061
|
15.2%
|
$8,538
|
$1,301
|
Birmingham,
AL
|
$181,968
|
12.5%
|
$6,162
|
$769
|
Salt Lake City,
UT
|
$411,548
|
20.5%
|
$8,198
|
$1,676
|
*Table ordered by
market size
|
About Zillow
Zillow, the most visited real estate
website in the U.S., is building an on-demand real estate
experience. Whether selling, buying, renting or financing,
customers can turn to Zillow's businesses to find and get into
their next home with speed, certainty and ease.
In addition to for-sale and rental listings, Zillow Offers buys
and sells homes directly in dozens of markets across the country,
allowing sellers control over their timeline. Zillow Home Loans,
our affiliate lender, provides our customers with an easy option to
get pre-approved and secure financing for their next home
purchase.
Millions of people visit Zillow Group sites every month to start
their home search, and now they can rely on Zillow to help them
finish it — with the same confidence, ease and empowerment they've
come to expect from real estate's most trusted brand.
Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and
ZG).
i Estimates for median household income were produced
using annual homeowner income figures from the American Community
Survey and projecting out based on the historical relationship with
monthly Bureau of Labor Statistics figures.
ii Assuming the typical home value in the U.S. per the
August 31 Zillow Home Value Index
(ZHVI), and a 30-year mortgage at the prevailing interest rate with
a 20% down payment. Estimated monthly payment includes mortgage,
property taxes and homeowners insurance.
iii Freddie Mac, Primary Mortgage Market Survey,
October 22, 2020
iv Zillow Consumer Housing Trends Report, 2020
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SOURCE Zillow