Are you an aspiring homeowner waiting for mortgage rates and home prices to fall before you jump in the market? You may be waiting in vain.
According to a recent Zillow analysis, a median-income family would either need home values to fall by a whopping 18 percent (from about $369,000 to $304,000), or mortgage rates to fall from June’s rate of 6.74 percent to 4.43 percent in order to afford a typical U.S. home. (The analysis assumes a 20 percent down payment on a 30-year fixed-rate mortgage, and defines an “affordable” purchase as requiring no more than 30 percent of household income.)
“There’s no realistic path for that to happen,” said Kara Ng, a senior economist at Zillow, without a serious disruption to the economy, like a slowdown in economic and income growth, or a rise in unemployment.
According to Ms. Ng, the typical mortgage payment in the U.S. is nearly $1,000 more per month than it was before the pandemic. “Are you getting paid $1,000 more?” she asked. “If not, that means it’s getting more unaffordable for you to buy a home.”
In some expensive metros — New York, Los Angeles, Miami and San Francisco among them — the typical home would remain unaffordable to median-income families even if mortgage rates dropped to zero. In these cities, taxes, insurance and maintenance costs alone can surpass 10 percent of median income, according to Zillow.
The bottom line, Ms. Ng explained, is that lower rates or prices won’t solve the affordability crisis we’re in. Instead, the country needs to address a home-building deficit that was created over decades as construction failed to keep pace with population growth.
But there are some friendlier markets where mortgage rates could climb above the current 6.7 percent and still not price buyers out. In Pittsburgh, for one, even if the rate climbed as high as 8.9 percent, homes would remain affordable for median-earning families. Other metros in the South and Midwest — St. Louis, Indianapolis and Birmingham, Ala., among them — would also still be affordable with a rate increase.
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