Purchasing a typical home is eating up a larger slice of a client’s income when compared to historical data, according to a new analysis by Zillow, and it is a phenomenon that is spring up in more than half of the 35 largest markets across the U.S.
A key driver to this trend is homes on the market that are, on average, more expensive than the median home value of all homes in the same market.
In fact, the national median existing single-family home price in the first quarter was $232,100, up 6.9 percent from the first quarter of 2016 ($217,200) and the fastest growth since the second quarter of 2015 (8.2 percent).
According to Lawrence Yun, National Association of Realtors chief economist, supply shortages have fueled faster price appreciation across the country.
“Prospective buyers poured into the market to start the year, and while their increased presence led to a boost in sales, new listings failed to keep up and hovered around record lows all quarter,” he said. “Those able to successfully buy most likely had to outbid others – especially for those in the starter-home market – which in turn quickened price growth to the fastest quarterly pace in almost two years.”
Prices have continued to increase, rising above peak values seen during the housing bubble in the early- and mid-2000s. This has drummed up concerns about affordability, even as low interest rates have kept monthly payments somewhat affordable. That is dissipating as monthly payments are starting to eat up a larger share of income.
Nationwide, the typical mortgage payments on the median home for sale require 20 percent of the median income.
Zillow Chief Economist Dr. Svenja Gudell pointed out that homes risen in price so fast in many major markets that even with low mortgage rates, monthly costs for homes that are currently for sale are starting to be unaffordable.
“Down payments are a top concern for today’s home buyers, but the reality is that monthly costs are becoming unaffordable as well,” Gudell said. “Low inventory is pushing sticker prices higher, and when mortgage rates start to rise, monthly payments will be driven further into unaffordable territory.”
In Los Angeles, the typical home for sale requires about 46.8 percent of the median income to purchase. That is more than 11 percent higher than the amount required in the years leading up to the housing bubble.
At the other end of the spectrum in the Zillow analysis is Cleveland, where homes for sale are more affordable than historic figures. The median list price of about $144,000 would require 12.7 percent of the median income for monthly mortgage payments. In pre-bubble years, mortgage payments on a typical Cleveland home required 20 percent of the median income.