What will it take to make housing affordable again?
According to a new Zillow analysis, it would require a 24.7% drop in home values.
Increased home values and rising rates create a mortgage affordability crisis for many would-be buyers. And economists don’t expect this to change anytime soon.
MORTGAGE AFFORDABILITY
The monthly mortgage payment on a typical U.S. home is $1,850, which is a 75.5% increase compared to a year ago. When talking money, buyers pay about $800 more per month than those who bought when mortgage rates were in the 3-4% range.
While home values have fallen slightly since a peak in June, volatile mortgage rates mean monthly mortgage payments are becoming more and more expensive.
But how far off are monthly payments compared to pre-pandemic norms?
To answer that, let’s look at mortgage affordability—or the share of income a median household needs to spend on a monthly mortgage payment. The average income needed for mortgage payments from 2005-2021 was 22.8%. With the financial burden threshold for mortgage payments being 30%, homeownership was relatively affordable pre-pandemic.
