Mortgage affordability is at its worst point in a decade, according to Zillow. A new report from the company finds that buying and owning a home in Q1 was at its most burdensome for homeowners since the second quarter 2009.
According to Zillow, the share of income needed for monthly mortgage payments on the median U.S. home increased to 17.1 percent from Q4 of 2017 and compares to 2009's 17.5 percent in the year's second quarter.
“Back then, the trend was different,” Zillow reported. “Mortgages were becoming more affordable as home prices and interest rates fell in tandem during the early years of the recession, well after the share of income needed to afford the typical home peaked at 25.4 percent in 2006 during the height of the bubble.”
According to Zillow, “the affordability edge has worn so thin in nine of the 35 largest housing markets that mortgage payments are now a bigger financial burden than they were historically.”
Following the most recent trends involving least affordable markets, the West Coast leads the pack in burdened households. According to Zillow, In the Bay Area, the least affordable metro in Q1, homeowners, and renters in Q1 paid as much as 68 percent of their income towards household expenses; and in San Jose, mortgage holders paid 51 percent towards mortgage payments. That's high even for San Jose, where the historical average is around 35 percent.
“If mortgage rates reach 5 percent next year, as many economists expect,” Zillow reported, “home shoppers in an additional seven markets would face greater mortgage burdens than buyers did historically.”
Another figure from Q1 is that the median U.S. home was worth 3.54 times the typical household income. Between 1985 and 2000, that figure was 2.78, according to Zillow.
The issue stems from the one-two punch of rising mortgage rates and continuing home value appreciation. But, Zillow reported, “mortgage rates and housing costs represent one side of the affordability coin; income is the other.”
While home values have recovered nationally, wages have been slower to bounce back, Zillow reported. And a possibly ominous trend is that the last time the price-to-income ratio was this high was in the second quarter of 2008, “when it was 3.63, on its way down from housing-boom highs.”
Times are even harder for renters. The typical renter paid 28.8 percent of U.S. median income in the first quarter, Zillow reported. That's up from 26 percent between 1985 and 2000, but down from a peak of about 30 percent in the second quarter of 2015.