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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 any time in the previous six years, according to a report released today by Zillow. The report finds that U.S. buyers can expect to spend 15.8 percent of their median household income on housing each month, up from 14.7 percent a year ago.
In Greater Boston the figure is 23.7 percent, 50 percent higher than the national average.
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 the second quarter of 2010, according to a Zillow analysis of mortgage and rent affordability.
The monthly mortgage payment for the typical U.S. home was $758 at the end of 2016, an increase of about $68 from 2015. Most of this increase – $47 – is 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 twice more this year, further increasing 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.
“As mortgage rates rise, buyers will face higher financing costs and already expensive homes will come with even higher monthly mortgage payments,” Zillow Chief Economist Dr. Svenja Gudell said in a statement. “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.
