According to the Q4 2016 Housing Affordability report [1] from Zillow released on Thursday, mortgages rates and home values are showing substantial growth, causing homeowners to increase put more of their monthly income toward their mortgage payments and affordability to decline.
Dr. Svenja Gudell, Chief Economist at Zillow, stated that home buyers could expect monthly mortgage costs of $758, or 15.8 percent of the median household’s monthly income at the end of 2016, which is a 14.7 percent increase from Q4 2015.
“The share of income needed to afford a typical home is still low relative to both the housing bubble years and more normal times, when the typical household would need to spend 20 to 25 percent of their income on a mortgage, but it’s quickly worsening,” she said.
Unfortunately, rising interest rates coupled with home value growth are bound to make housing less affordable. And while mortgages remain cost efficient as growth in housing cost continues to increase wages, and affordability continues to deteriorate.
The growth in mortgage payments are driven by two factors: the Federal Reserve rate hike in Q4 and slowed home price appreciation. The report stated that the average home appreciated 1.9 percent during Q4 of 2016, which is considered the fastest quarterly growth on record since the start of the housing recovery in 2012.
Just how long this upward trend might last is still a topic of discussion, but in the future, rising mortgages rate will start impacting home value as affordability continues to decrease.