Mortgage Payments Least Affordable for Average Buyers Since 2008

Surging home prices have made mortgage payments more unaffordable than any time since 2008.

The median American household would need to spend 32.1% of its income on mortgage payments on a median-priced home today, according to the Federal Reserve Bank of Atlanta. In November 2008, that number was 34.2%.

The Atlanta Fed estimated the amount a household would need to spend on mortgage payments rose 3.1% in the first six months of this year alone.

Though low interest rates and slightly higher incomes improve affordability, the price of homes has negated any positive buying power they normally would have generated. Prices continue to climb despite some speculation that the market may soon cool. Years of underbuilding have resulted in a shortage of homes listed for sale, driving prices up.

Higher prices force buyers to take out larger loans, meaning larger monthly payments.

The latest month in the Atlanta Fed’s calculations was July, which saw a 23% year-over-year increase in median home prices to $342,350. Median incomes, however, were only up 3% year-over-year, to $67,031.

First-time homebuyers are affected most by a lack of affordable housing. They are stuck buying a less desirable home for a higher monthly payment, or waiting until the market cools. 

“It’s a lot more difficult for people to get their foot in the door of the housing market,” said Ralph McLaughlin, chief economist at home-finance company Haus.

“The question is whether it is an insurmountable hurdle or is it just that these households have to spend more of their monthly income on the mortgage.”

Many homebuyers are opting to wait out the market, contributing to soaring rent prices. Fannie Mae’s Home Purchase Sentiment Index found that only 32% of Americans believed it was a good time to buy a home in August, up slightly from July but still low.

On September 1, the White House released its plan to increase the supply of affordable rental properties. Among the initiatives announced by the Biden administration are:

  • Relaunching the partnership between the Department of Treasury’s (Treasury) Federal Financing Bank and the Department of Housing and Urban Development (HUD) Risk Sharing Program in order to enable eligible state housing finance agencies (HFAs) to provide low-cost capital for affordable housing development;
  • Raising Fannie Mae’s and Freddie Mac’s (the Enterprises) equity cap for the Low-Income Housing Tax Credit (LIHTC), the largest federal program for the construction and rehabilitation of affordable rental housing;
  • And making more funding available to Community Development Finance Institutions (CDFIs) and non-profit housing groups for affordable housing production under the Capital Magnet Fund.