This may not come as a surprise to many U.S. homeowners, but the percentage of household income that goes toward housing, or mortgage payments, is at a five-year high.
Currently, 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, according to a new analysis from Zillow. That’s the highest level since the second quarter of 2010.
The monthly mortgage payment for the typical U.S. home was $758 at the end of 2016, an increase of about $68 from 2015, Zillow says. “Most of this increase, $47, can be attributed to home value appreciation, while higher mortgage rates are responsible for the remainder,” Zillow states.
The real estate site added that housing experts and economists say 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,” 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.”
Gudell added that more expensive coastal markets “are either close to or have exceeded” historical affordability when it comes to housing expenses. Meanwhile, rent appreciation has slowed recently, giving renters’ incomes “a chance to catch up as many are already committing a larger share of their income to a monthly rental payment.”
Rental affordability has been a bigger concern than mortgage affordability for several years as rents rose to historically high levels while low mortgage rates kept buying a home relatively affordable for households that can afford to make the downpayment.