How Rising Interest Rates Impact Home Affordability
January 2, 2019
2018 saw mortgage rates climb steadily higher, which has had a real impact on the potential homes available to buyers. A new study from Zillow shows just how profound this impact has been. The study looked at how much a household with the median income could afford, assuming that they spend no more than one-third of their income on housing.
At the start of last year, a median income household could have afforded a $393,700 home. Since then, mortgage rates have increased from 4.15 percent to 4.63 percent. This means that today, that same household could only afford a $373,000 home. At today’s rates, a median income household is only able to afford 56.5 percent of the homes currently on the market.
Zillow anticipates that interest rates will hit 5.5 percent by the end of the year. This would lower the home buying budget by an additional $35,000 and eliminate 5.4 percent of available homes from buyers, unless they are willing to spend more than one-third of their income.