Mortgage Payments Eat Up More Median Household Income

What is the true cost of homeownership? According a new data analysis from Zillow, today’s typical monthly mortgage payment requires more of the average household income than it has anytime in the previous six years.

 

Zillow has determined that buyers spend 15.8 percent of the median household income on housing each month, up from 14.7 percent a year ago. The monthly mortgage payment for the typical U.S. home was $758 at the end of 2016, an increase of about $68 from 2015—and $47 of that increase can be attributed to home value appreciation, with the rest going into higher mortgage rates. Among the nation's 35 largest markets, homeowners in Los Angeles, San Jose and San Francisco shelled out more than 40 percent of their median household income to finance their residential needs.  

 

The situation was not easier on renters. Zillow determined that renters would need to set aside 29.2 percent of the median income to pay the rent each month, slightly less than the 29.4 percent of income required in the fourth quarter of 2015. The markets that require the most income from renters are Los Angeles, San Francisco, and Miami.

 

"As mortgage rates rise, buyers will face higher financing costs and already expensive homes will come with even higher monthly mortgage payments," said Zillow Chief Economist Svenja Gudell. "Nationally, mortgage rates still have room to grow before the share of income needed to pay the median monthly mortgage reaches the historical average, but many more expensive coastal markets are either close to or have exceeded what has been considered historically affordable. On the rental side, rent appreciation has slowed lately, giving renters' incomes a chance to catch up as many are already committing a larger share of their income to a monthly rental payment."