Mortgage rates have increased by nearly 50 basis points since the start of this year, following an extended period of historically low rates. By the end of last year, the typical mortgage payment required 15.7 percent of the median household income, below the historical monthly mortgage payment of 21 percent of the median income.
But Zillow warned that if mortgage rates reach six percent over the next 12 months, the share of income needed to cover monthly housing costs on the median home will be jump to 20.5 percent, slightly under the historic 21 percent norm. In pricey markets, the share of income will be significantly higher—San Jose, for example, saw the share of income at 46.1 percent at the end of 2017, far above its 36 percent historical norm. Zillow noted that renters do not have it easier: The typical rental payment requires 28.9 percent of the median income.
"For nearly a decade now, homebuyers have been buoyed by historically low mortgage rates that made buying a home more affordable than it was for prior generations, but tomorrow's buyers may not be so lucky," said Zillow Senior Economist Aaron Terrazas. "Rates are showing a clear upward trend, bringing an end to an era of historically affordable mortgage payments. Bigger life considerations typically take precedence in the decision to move, but some homeowners who locked in a lower mortgage rate may look to alternatives like renovating their current home instead of becoming a buyer in a stressful, competitive market when higher rates would limit their buying power below what it was when they bought their current home."