Zillow recently performed an analysis on home prices, down payments and mortgages, finding that in more than half of the nation’s 35 largest markets, buying the typical home listed for sale requires a greater share of income than the median-valued home required historically.
“Homes have gotten so expensive in many major cities that even with low mortgage rates, monthly costs for homes that are currently for sale are starting to be unaffordable,” says Dr. Svenja Gudell, Zillow’s chief economist.
“Down payments are a top concern for today’s home buyers, but the reality is that monthly costs are becoming unaffordable, as well,” Gudell adds. “Low inventory is pushing sticker prices higher, and when mortgage rates start to rise, monthly payments will be driven further into unaffordable territory.”
Nationally, mortgage payments on the median home for sale require 20% of the median income, according to Zillow’s analysis. But home buying in some of the largest U.S. markets – particularly in California – demands substantially more of a buyer’s income.
For example, home buyers in greater Los Angeles (Los Angeles-Long Beach-Anaheim) have to spend the highest share of income on mortgage payments: The typical home for sale would require 46.8% of the median income.
In contrast, in the years leading up to the housing bubble, Los Angeles home buyers would have had to spend 35.2% of their income on mortgage payments for the typical home.
Other “unaffordable” markets include San Francisco; San Diego; San Jose, Calif.; and Miami-Fort Lauderdale, Fla.
On the other hand, many markets exhibit strong affordability. As an example, Cleveland homes for sale are more affordable than homes were historically. The median list price of about $144,000 would require 12.7% of the median income for monthly mortgage payments.
Read more about Zillow’s findings here.