Mortgage Payments Take Up Biggest Share of Income since 2010
Rising mortgage rates and accelerating home value growth lead to larger share of income required to pay monthly mortgage
- Nationally, buyers could expect to pay 15.8 percent of their income for the typical monthly mortgage payment in 2016 Q4, up from 14.7 percent a year earlier.
- Monthly rental payments require 29.2 percent of the median household income, down slightly from 29.4 percent in 2015 Q4.
- Among the largest U.S. metros, Los Angeles requires the highest share of income from both buyers and renters making monthly housing payments.
Feb 16, 2017, 07:00 ET
SEATTLE, Feb. 16, 2017 /PRNewswire/ -- With interest rates and home values on the rise, the typical monthly mortgage payment now requires more of the average household income than it has anytime in the previous six years. Buyers can expect to spend 15.8 percent of the median household income on housing each month, up from 14.7 percent a year ago.
Home value growth accelerated at the end of 2016, and mortgage rates are rising again after hovering around historical lows for the past few years. The combined effect pushed the share of income households need to pay their mortgage to the highest levels since 2010 Q2, according to a Zillow® analysis of mortgage and rent affordability[i].
The monthly mortgage payment for the typical U.S. home was $758[ii] at the end of 2016, an increase of about $68 from 2015. Most of this increase -- $47 -- can be attributed to home value appreciation, while higher mortgage rates are responsible for the remainder.
The Federal Reserve is expected to raise the federal funds rate target two more times this year, which could further increase mortgage rates. A recent survey of 100 housing experts and economists found that rising mortgage rates and their effect on affordability will be the most significant driver of the 2017 housing market[iii].
"As mortgage rates rise, buyers will face higher financing costs and already expensive homes will come with even higher monthly mortgage payments," said Zillow Chief Economist Dr. Svenja Gudell. "Nationally, mortgage rates still have room to grow before the share of income needed to pay the median monthly mortgage reaches the historical average, but many more expensive coastal markets are either close to or have exceeded what has been considered historically affordable. 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."
Among the nation's 35 largest markets, monthly mortgage payments in Los Angeles, San Jose and San Francisco require the largest share of the median household income -- more than 40 percent.
Rental affordability has been a bigger worry than mortgage affordability for the past several years as rents rose to historically high levels while low rates kept mortgage payments relatively affordable. As home value growth accelerated at the end of 2016, rents remained relatively flat, and the share of income needed to pay monthly rent has stayed stubbornly high since 2009. Renters would need to set aside 29.2 percent of the median income to pay the rent each month, slightly less than the 29.4 percent of income required in 2015 Q4.
The markets that require the most income from renters are Los Angeles, San Francisco, and Miami.
| Metropolitan Area |
% Income Spent On Mortgage, 2016 Q4 |
Historic Income Spent On Mortgage (1985-2000) |
% Income Spent On Rent, 2016 Q4 |
Historic Income Spent On Rent (1985-2000) |
| United States |
15.8% |
21.0% |
29.2% |
25.8% |
| New York, NY |
26.7% |
29.7% |
40.5% |
26.2% |
| Los Angeles-Long Beach-Anaheim, CA |
43.0% |
35.2% |
48.5% |
36.2% |
| Chicago, IL |
14.6% |
22.8% |
29.8% |
25.2% |
| Dallas-Fort Worth, TX |
15.1% |
20.4% |
29.9% |
21.8% |
| Philadelphia, PA |
15.0% |
20.0% |
28.0% |
21.4% |
| Houston, TX |
13.2% |
15.3% |
29.9% |
24.3% |
| Washington, DC |
18.6% |
22.3% |
26.5% |
17.6% |
| Miami-Fort Lauderdale, FL |
22.1% |
20.0% |
42.7% |
28.5% |
| Atlanta, GA |
12.9% |
19.1% |
25.4% |
19.3% |
| Boston, MA |
23.7% |
26.2% |
34.3% |
26.3% |
| San Francisco, CA |
42.2% |
38.3% |
43.8% |
30.6% |
| Detroit, MI |
11.6% |
16.6% |
25.5% |
19.9% |
| Riverside, CA |
25.9% |
26.5% |
36.2% |
32.7% |
| Phoenix, AZ |
18.7% |
21.3% |
27.1% |
22.9% |
| Seattle, WA |
24.7% |
25.2% |
32.0% |
23.8% |
| Minneapolis-St Paul, MN |
15.4% |
18.4% |
26.0% |
21.3% |
| San Diego, CA |
35.6% |
34.1% |
42.0% |
34.6% |
| St. Louis, MO |
12.0% |
16.1% |
23.1% |
21.2% |
| Tampa, FL |
16.9% |
18.7% |
32.2% |
27.6% |
| Baltimore, MD |
16.4% |
21.4% |
28.0% |
26.9% |
| Denver, CO |
22.9% |
21.9% |
33.0% |
23.7% |
| Pittsburgh, PA |
11.2% |
15.5% |
23.0% |
28.4% |
| Portland, OR |
25.0% |
22.5% |
32.6% |
23.5% |
| Charlotte, NC |
14.1% |
18.3% |
26.7% |
19.3% |
| Sacramento, CA |
25.3% |
28.6% |
31.3% |
31.8% |
| San Antonio, TX |
13.2% |
17.7% |
28.4% |
26.2% |
| Orlando, FL |
18.0% |
20.4% |
31.8% |
22.6% |
| Cincinnati, OH |
11.8% |
19.3% |
25.4% |
19.2% |
| Cleveland, OH |
11.6% |
20.0% |
25.9% |
22.7% |
| Kansas City, MO |
11.4% |
20.1% |
23.7% |
17.5% |
| Las Vegas, NV |
19.1% |
25.9% |
28.2% |
24.1% |
| Columbus, OH |
12.6% |
20.0% |
25.6% |
22.0% |
| Indianapolis, IN |
11.2% |
20.8% |
25.3% |
21.8% |
| San Jose, CA |
42.6% |
36.0% |
39.2% |
26.0% |
| Austin, TX |
17.9% |
18.9% |
29.8% |
23.3% |
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 the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow'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 (NASDAQ: Z and ZG), and headquartered in Seattle.
Zillow is a registered trademark of Zillow, Inc.
[i] Zillow determined affordability by analyzing the current percentage of a metro area's median income needed to afford the rent or the monthly mortgage payment on a median-priced home or apartment, and compared it to the share of income needed in the pre-bubble years between 1985 and 1999. For mortgage affordability, Zillow assumed a 20 percent down payment and a 30-year, fixed-rate mortgage at prevailing mortgage rates pulled from the Freddie Mac Primary Mortgage Market Survey. If the share of monthly income currently needed to afford the median-priced home or apartment is greater than it was during the pre-bubble years, that area is considered unaffordable for typical buyers or renters.
[ii] Assuming a 20 percent down payment on a 30-year fixed mortgage
[iii] http://www.zillow.com/research/mortgage-interest-rates-2017-zhpe-14187/
SOURCE Zillow