Even with low interest rates, mortgages become unaffordable

Even in today’s environment of low interest rates, mortgage payments are becoming increasingly unaffordable for the median American family, according to a report from the Federal Reserve Bank of Atlanta.

A median-income household is expected to spend 32.6% of its annual income on a median-priced home, the Atlanta Fed reported. And the median price of existing homes hit an all-time high in June 2021: the three-month average topped $ 340,000, a 23.8% increase from June 2020.

This signals a big affordability problem: Families who pay more than 30% of their monthly income for housing are considered “encumbered costs,” according to the Department of Housing and Urban Development. They may find it difficult to pay for adequate food, medical care and other basic necessities because so much of their income is spent on shelter.

The Atlanta Fed reports that low mortgage interest rates throughout the coronavirus pandemic have been a “catalyst” for the increase in demand for housing. And although prices have risen on the back of demand, low interest rates, coupled with modest income growth, have kept monthly mortgage payments affordable for many buyers in 2020, according to the Atlanta Fed.

But that dynamic changed throughout 2021. Although the 30-year fixed mortgage rate remained at an all-time high near 2.87% in August, according to the Atlanta Fed, that no longer compensates for the increase. prices. Buyers have hit a wall of affordability.

The problem is particularly acute for first-time homebuyers, who tend to have less capital than other homebuyers. In a separate report, Zillow found that it now takes them a year longer to save for a 20% down payment than it did just five years ago.

The affordability of mortgages is just one part of the housing crisis in the United States: rent is also becoming increasingly less affordable for many families across the country.

The rise of remote working since the start of the pandemic has given people with higher incomes the ability to travel just about anywhere. This led to markets across the country seeing an influx of wealthier buyers and, as a result, rising house prices.

Coastal cities consistently top the lists of the least affordable places to live in the United States, and that hasn’t changed. The Fed report notes that eight of the country’s 10 least affordable markets in June 2021 were in California, with the Seattle and New York metropolitan areas taking the other two spots.

But the pandemic has also started to charge people for generally more affordable places. The largest year-over-year declines in affordability occurred in metropolitan areas including Boise City, Idaho; Phoenix-Mesa-Scottsdale, Arizona; and Austin-Round Rock, Texas.

Median home prices in these three markets have increased by more than 25% (meanwhile, house prices in San Francisco, for example, have increased by 7% during the same period). These areas are still not as expensive as New York or Los Angeles in absolute terms, but locals are increasingly being charged outside of their hometown.

“In most cases, the markets with the greatest decline in affordability have had an influx of homebuyers from higher-cost markets over the past year,” reports the Atlanta Fed.

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