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Report: Mortgage payments requiring largest share of income since 2009

Buying News
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. Associated Press

In the first quarter of 2018, the share of median income needed for a monthly mortgage payment on a typical home in the United States increased to 17.1 percent, up from 15.9 percent in the same period last year, according to Zillow’s latest affordability report.

This marks the second biggest quarterly increase in the mortgage burden since the housing market collapsed in 2007, according to the real estate website. In the fourth quarter of 2016, the share of income needed for mortgage payments increased from 14.1 percent to 15.6 percent.

Mortgage payments are a bigger financial burden than they were historically (1985-2000) in nine of the 35 biggest US metropolitan areas. Seven are along the West Coast, led by San Jose, where mortgage payments for the typical home increased from their historic average of 35.8 percent to 51.2 percent of the median income.

Boston, the report said, is one of seven metro areas where the mortgage burden will be greater than the historic average if interest rates reach 5 percent next year, as some economists expect, and home values continue to climb. 

Throughout the housing market recovery, low mortgage rates have helped to sustain housing affordability, even as home values climbed to new peaks, but mortgage rates increased sharply to start the year, and affordability is waning as a result. Mortgage payments haven’t taken up such a large share of the median income since the second quarter of 2009, when monthly housing costs for the typical US home required 17.5 percent of the median income, and mortgage rates were well above 5 percent.

In welcome news for buyers, long-term mortgage rates fell this week, marking their third decline in the past four weeks, the Associated Press reported. Mortgage buyer Freddie Mac said Thursday that the average rate on 30-year, fixed-rate mortgages was 4.57 percent, down from 4.62 percent last week.

“For the past few years, historically low mortgage rates provided the silver lining for buyers as prices rose higher and higher,” said Aaron Terrazas, Zillow senior economist. “If you were able to come up with a down payment, the low rates kept monthly housing costs relatively affordable in most parts of the country. Now, though, as rates are on the rise and home values are climbing at their fastest pace in 12 years, that affordability edge is getting thinner. In markets that have seen some of the biggest increases in home values, housing costs already take up a larger share of income than they did historically, making it all the more difficult for buyers.”

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