SEATTLE, Aug. 12, 2021 /PRNewswire/ -- Housing
affordability improvements brought on by historically low mortgage
rates and dampened rent growth are quickly evaporating as housing
costs rise faster than incomes. A new Zillow® analysis finds
these affordability1 issues are expected to worsen by
the end of the year, and are likely to leave millions newly housing
cost burdened.
Interest rates play a major role in determining monthly
payments, a key component of affordability. For the average U.S.
home buyer, rates that began dropping in late 2018 and fell to
record lows in January 2021 have kept
mortgage payments2 as a share of income lower than their
previous peak in late 2018. But that's about to change.
Mortgage payments as a percent of income reached 19.4% in June
-- the most current observed data -- and are forecast to surpass
2018 levels in August. Assuming home values grow in line with
Zillow forecasts, that burden could rise to more than 23.1% by the
end of the year, depending on the path of mortgage rates going
forward.
"Strong demand and rising prices for homes are overwhelming the
ability of low mortgage rates to keep monthly payments down," said
Nicole Bachaud, Zillow economic data
analyst. "As prices continue to outpace income gains, affordability
constraints will start to slow home price growth."
Austin in particular has seen
monthly payments for new mortgages rising faster than income
growth, a trend that has pushed the Sun Belt standout six spots
down the affordability ranks over the past year. As of June 2021, Austin is more affordable than eight major
U.S. metros. But by December, it should surpass Seattle, Miami and New
York, leaving only expensive California metros beyond it: San Francisco, San
Jose, San Diego,
Los Angeles, and Riverside. Keep in mind, though, that typical
home values and sale prices in Austin are still less than half of those in
San Francisco and San
Jose.
New home buyers in Austin in
June 2020 spent 19.7% of their income
on monthly mortgage payments, but by June
2021, that number had risen to 25.3%. If mortgage rates stay
at just under 3%, Austin will see
new home buyers' share of income spent on mortgage bills rise to
30.1% by December, beyond the 30% threshold generally considered to
be housing burdened.
If rates rise above 3% over the next few months, monthly
payments for new mortgages will go up as well, and the change is
more pronounced for costly houses. In the nation's most expensive
markets, San Jose and San Francisco, an increase in interest rates
to 3.5% by December could cost homeowners an extra $378 and $334 more
per month in mortgage payments, respectively. If interest rates
rise to 4%, those increases stand at $751 and $663,
respectively.
The Cost of Rising Rents
Rent payments as a portion of
income are forecast to rise from 29.96% in June to 30.2% by
December. That will push U.S. rents beyond the 30% threshold for
renters being housing burdened, leaving less money left over for
groceries, bills and other expenses. The pandemic's impact was felt
more keenly by renters, who were more likely to report a loss
of income and/or job loss than homeowners, according to a recent
Zillow survey, and homeowners typically earn more than renters
do.
Previous research found that when rent affordability reaches
above 32% housing costs can lead to a rapid rise in homelessness.
As of June, 10 of the 50 largest U.S. metros have rent burdens
beyond 32%, and Denver is expected
to join that list by December.
Some metros are forecasted to take a dramatic step down in rent
affordability, while others (13 of the top-50) are predicted to
improve. Buffalo, NY is expected
to drop from 23rd most affordable in June to 35th among the 50
largest metros, while red-hot Phoenix will drop from 29th to 38th. But, in
Cleveland, where the for-sale
market has been red-hot, renters can expect to save about
$23 on rent per month between now and
2022, while Providence, RI moved
up five spots on the rental affordability charts, from 31st to
26th.
"Increasing the available supply of homes -- especially more
dense, affordable housing types like townhomes and condos -- will
help balance the market and give renters and prospective home
buyers opportunities to seek relief from being burdened by housing
costs," Bachaud said.
Housing experts recently surveyed by Zillow said
relaxing zoning rules is the most practical and effective way to
increase housing supply.
Metropolitan
Area*
|
Mortgage
Affordability -
June 2021
|
Mortgage
Affordability at
2.975% Rates -
Dec. 2021
|
Mortgage
Monthly
Payment at
2.975 rates -
Dec. 2021
|
Rent
Affordability -
June 2021
|
Rent
Affordability -
Dec. 2021
|
United
States
|
19.4%
|
21.1%
|
$1,537
|
30%
|
30.2%
|
New York,
NY
|
25.4%
|
27.2%
|
$2,845
|
31.1%
|
31.8%
|
Los Angeles-Long
Beach-Anaheim, CA
|
34%
|
37.2%
|
$3,724
|
33.2%
|
33.5%
|
Chicago,
IL
|
17.4%
|
18.7%
|
$1,606
|
30.4%
|
30.9%
|
Dallas-Fort Worth,
TX
|
19.8%
|
22.1%
|
$1,883
|
26.7%
|
27.1%
|
Philadelphia,
PA
|
17.7%
|
18.9%
|
$1,642
|
30.6%
|
30.2%
|
Houston,
TX
|
17.2%
|
18.8%
|
$1,567
|
28.8%
|
29%
|
Washington,
DC
|
18.6%
|
19.7%
|
$2,361
|
29.3%
|
29.9%
|
Miami-Fort
Lauderdale, FL
|
25.6%
|
27.6%
|
$1,876
|
39.4%
|
40.3%
|
Atlanta,
GA
|
16.3%
|
18%
|
$1,498
|
28.8%
|
29.4%
|
Boston, MA
|
24.8%
|
27%
|
$2,943
|
33.3%
|
33.8%
|
San Francisco,
CA
|
39.3%
|
43.1%
|
$5,925
|
28.2%
|
28.6%
|
Detroit,
MI
|
16.3%
|
17.9%
|
$1,230
|
26.9%
|
26.6%
|
Riverside,
CA
|
27.5%
|
30.9%
|
$2,396
|
33.9%
|
35%
|
Phoenix,
AZ
|
21.5%
|
24.2%
|
$1,818
|
29.2%
|
31.7%
|
Seattle,
WA
|
26.8%
|
29.9%
|
$3,241
|
29.9%
|
30.2%
|
Minneapolis-St Paul,
MN
|
18.4%
|
19.7%
|
$1,785
|
30.4%
|
30.4%
|
San Diego,
CA
|
32.2%
|
36.4%
|
$3,663
|
36.4%
|
37.1%
|
St. Louis,
MO
|
15%
|
16.3%
|
$1,174
|
24.4%
|
24.1%
|
Tampa, FL
|
22.6%
|
25.4%
|
$1,604
|
32.8%
|
34.3%
|
Baltimore,
MD
|
16.6%
|
17.5%
|
$1,648
|
30.3%
|
30.1%
|
Denver, CO
|
24.4%
|
27.4%
|
$2,569
|
31.8%
|
32.2%
|
Pittsburgh,
PA
|
14.8%
|
16.1%
|
$1,099
|
26.7%
|
27.4%
|
Portland,
OR
|
24.8%
|
27.2%
|
$2,499
|
29%
|
29.2%
|
Charlotte,
NC
|
18.8%
|
20.7%
|
$1,481
|
28%
|
28.6%
|
Sacramento,
CA
|
25%
|
27.8%
|
$2,585
|
33.4%
|
34.2%
|
San Antonio,
TX
|
19.5%
|
21.8%
|
$1,460
|
27.8%
|
27.4%
|
Orlando,
FL
|
19.9%
|
21.6%
|
$1,569
|
34.7%
|
36.5%
|
Cincinnati,
OH
|
14.5%
|
15.4%
|
$1,208
|
26.3%
|
26.3%
|
Cleveland,
OH
|
15.5%
|
17%
|
$1,141
|
26%
|
25.4%
|
Kansas City,
MO
|
16%
|
16.9%
|
$1,324
|
24.6%
|
24.5%
|
Las Vegas,
NV
|
20.4%
|
23.1%
|
$1,712
|
33.1%
|
36.6%
|
Columbus,
OH
|
16.8%
|
18.2%
|
$1,444
|
24.6%
|
24.3%
|
Indianapolis,
IN
|
14.2%
|
15%
|
$1,122
|
25.5%
|
25.9%
|
San Jose,
CA
|
36.8%
|
40.9%
|
$6,617
|
27.6%
|
27.6%
|
Austin, TX
|
25.3%
|
30.1%
|
$3,021
|
28.6%
|
29.6%
|
Virginia Beach,
VA
|
16.8%
|
17.7%
|
$1,336
|
29%
|
29.9%
|
Nashville,
TN
|
19.5%
|
21.3%
|
$1,643
|
26.8%
|
26.4%
|
Providence,
RI
|
23.1%
|
24.8%
|
$2,082
|
29.5%
|
29.6%
|
Milwaukee,
WI
|
15.8%
|
17%
|
$1,387
|
24.3%
|
23.7%
|
Jacksonville,
FL
|
18.8%
|
20.6%
|
$1,471
|
27.8%
|
28.4%
|
Memphis,
TN
|
14.6%
|
15.5%
|
$1,029
|
30.5%
|
31.2%
|
Oklahoma City,
OK
|
13.7%
|
14.6%
|
$990
|
27.3%
|
27.3%
|
Louisville-Jefferson
County, KY
|
14.1%
|
14.6%
|
$1,048
|
25.2%
|
24.9%
|
Hartford,
CT
|
17.9%
|
19.2%
|
$1,668
|
30.7%
|
30.9%
|
Richmond,
VA
|
16.3%
|
17.1%
|
$1,326
|
28.9%
|
29.2%
|
New Orleans,
LA
|
18.6%
|
19.6%
|
$1,198
|
32.8%
|
33%
|
Buffalo,
NY
|
17.6%
|
|
|
28.6%
|
30.9%
|
Raleigh,
NC
|
17.%
|
18.9%
|
$1,698
|
25.9%
|
25.6%
|
Birmingham,
AL
|
13.5%
|
14.1%
|
$919
|
25.7%
|
25.9%
|
Salt Lake City,
UT
|
24.3%
|
27.6%
|
$2,397
|
27.9%
|
28.1%
|
|
*Table ordered by
market size
|
1 The rent and mortgage affordability metrics
used in this report were produced using the Nowcasting methodology
explained in this document.
2 Monthly mortgage payments include principal,
interest, property taxes and insurance.
About Zillow Group
Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate
to make it easier to unlock life's next chapter.
As the most-visited real estate website in the United States, Zillow® and its affiliates
offer customers an on-demand experience for selling, buying,
renting or financing with transparency and nearly seamless
end-to-end service. 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. Zillow recently launched
Zillow Homes, Inc., a licensed brokerage entity, to streamline
Zillow Offers transactions.
Zillow Group's brands, affiliates and subsidiaries include
Zillow®; Zillow Offers®; Zillow Premier Agent®; Zillow Home Loans™;
Zillow Closing Services™; Zillow Homes, Inc.; Trulia®; Out East®;
StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal
Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).
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SOURCE Zillow