Affordability Hits 15-Year Low

Affordability is at a 15-year low, with mortgage payments up in 45 of the 50 largest U.S. metros, according to Zillow’s latest market report.

Buying a typical U.S. home with interest rates of 5.78% would result in monthly payments of $2,127. That’s up 36% year to date, and 51% YOY.

Those monthly payments would account for 28% of homeowners’ monthly income, inching closer to the 30% benchmark that means homeowners are cost-burdened.

The report noted that since rates have risen above the April data it references, homeowners may already be at that 30% threshold.

Rising interest rates and soaring home prices have pushed mortgages out of reach for many Americans, leading to diminishing demand that has economists worried that recession is just around the corner.

“Mortgage rates took an unprecedented leap skyward over the past two weeks and quickly multiplied housing costs as they rose,” said Zillow economist Nicole Bachaud. 

“We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market’s needed rebalancing. While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled.” 

Even as rents have risen, it is still cheaper to rent than buy. Typical rent payments are higher than a monthly mortgage payment in only five of the 50 largest metros. In May 2019, rent was more expensive in 28 of those 50 metros.

Typical rents are now $1,979 in the U.S. and still rising, with 1.2% growth from April.

But as potential buyers back off, home price appreciation is slowing. Annual home price growth fell from 20.9% to 20.7% in May.

Home sales are also down, falling almost 20% YOY and down 2% from May 2019. Price drops are becoming more common as well. Redfin recently reported that 40% of home sellers are slashing prices in mid-size Midwest metros that increased in popularity during the pandemic.

“Arriving in the middle of the spring selling season, this deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges,” said Jeff Tucker, senior economist at Zillow.