The monthly mortgage payment on a typical U.S. home increased from $885 last January to a record-setting $1,162 this January, a 31% jump, according to a report by Jeff Tucker, a senior economist at Zillow.
According to Tucker's analysis, a 19.9% jump in the value of a typical home, combined with an increase in 30-year fixed mortgage rates from 2.74% to 3.45% over that time, resulted in a 1-2 punch to potential homebuyers.
In January 2021, a buyer purchasing the typical U.S. home worth $271,650, with a 20% down payment and a conforming, 30-year, fixed-rate mortgage at then-prevailing rates, would have expected to pay $885 a month (principal & interest only), the report said.
By this January, however, after factoring in home value growth, in which the typical U.S. home was now worth $325,667, and higher mortgage interest rates, that same payment had risen 31% to $1,162 a month.
That monthly mortgage payment is the highest on record, the report said, surpassing the previous peak set in July 2006 ($1,118, when mortgage rates were a whopping 6.76%). The previous record-high year-over-year growth in mortgage payments was in December 2013, when home prices had begun to rebound from their housing crash lows and mortgage rates hovered at 4.46%.
Tucker said the calculation was conservative and that monthly payments are likely much higher for buyers looking to buy the typical U.S. home, because the 20% down payment is not necessarily typical. Six in 10 buyers who purchased with a mortgage last year put down less than 20%, according to the 2021 Zillow Consumer Housing Trends Report. Borrowers who put less down naturally have a higher outstanding principal balance and will incur more interest, so their payments have likely climbed even faster in the last year, according to the report.
Annual growth in monthly mortgage payments is also much higher in some large U.S. markets in which local home-value growth has been particularly strong, the report said. Among the nation’s 50 largest metro markets, the year-over-year change in typical monthly mortgage payments was highest in January in Austin, Texas (+59.6%), Raleigh, N.C. (+44.1%), and Phoenix (+43.1%). Growth was slowest in Baltimore (+22.2%), Washington, D.C. (+22.2%) and Milwaukee (+22.8%).
Tucker said it is hard to anticipate what happens next because predicting interest rates is notoriously difficult. On a weekly basis, mortgage rates have already climbed from the January average used in these calculations, from 3.45% to 3.92% as of mid-February. If rates hold at that level in the fourth week of February, the monthly average will climb to 3.77%.
Home values could also continue to go up.
"We expect the Zillow Home Value Index to climb 1.7% between January and February, to $331,175. Together, that would imply a new typical mortgage payment of $1,230, or a whopping 36% higher than the typical payment of $905 recorded in February 2021," Tucker said in the report.
Higher borrowing costs, he said, are also likely to push buyers to seek out lower-priced homes, whether that means smaller homes or condos, more affordable neighborhoods, or even moving to a more affordable region.
"For others, it might mean delaying a home purchase altogether, until a larger down payment can be saved up or in the hopes of falling rates," Tucker said in the report.
He added that it's unclear what it means for home price appreciation. With so few homes on the market and the possibility that sellers still may expect multiple offers on their listings, even if a substantial share of buyers press “pause” on their home search for now. The inventory drought could also deepen if existing homeowners who bought or refinanced at rates below 3% decide to stay put rather than pay more in interest to trade up in today’s conditions, Tucker said.
