Nearly A Third Of Income Gobbled Up By Monthly Mortgage Payments Now

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The dramatic surge in housing prices has brought home values 25 percent above affordability norms, according to new data from Zillow released Thursday.

The share of income required to afford a mortgage has risen to 30.2 percent, well above the established norm of 22.8 percent of a homeowner’s income, according to the analysis.

On a national level, home prices are about 25 percent higher than they would need to be for affordability to return to normal — an extremely unlikely outcome, with Zillow economists forecasting relatively flat home values for the next 12 months.

The only event likely to bring home prices down significantly would be a sharp rise in inventory. But with approximately 11 percent fewer listings in 2022 than in 2019, and overall inventory 40 percent below pre-pandemic levels due in part to homeowners reluctance to list in a high-mortgage rate environment, a dramatic surge in inventory appears unlikely.

New listings are coming on the market gradually, at a rate 16 percent slower than the same period in September 2021, according to the report.

Nicole Bachaud. Image: Zillow

“The next several years appear set up for affordability to be a major challenge for homebuyers,” Zillow Senior Economist Nicole Bachaud said in a statement. “Inventory remains tight, real income growth is dismal, mortgage rates show no signs of dropping, and there is plenty of pent-up demand ready to bid prices back up if they reach a level would-be buyers can once again afford. Filling the housing deficit continues to be the key to long-term affordability, but the recent slowdown in single-family construction is not a good sign that the market is getting closer to building enough to meet demand.”

Home values would need to fall 24.7 percent nationally to return to the 22.8 percent norm of housing affordability. Locally, however, some markets are much closer to reaching their affordability norms, such as Hartford, Connecticut, where home values are 2.4 percent higher than where they would need to be, and Baltimore, Maryland, where they are 3.7 percent higher.

The national surge is driven by markets that have seen dramatic rises in home values, such as Salt Lake City, Dallas and Las Vegas, all of which are the furthest away from ideal affordability levels, all at least 37 percent higher.

Home values are trending down slowly, driven by discouraged homebuyers pulling out of the market after finding their budgets stretched to a breaking point by sky-high mortgage rates. While mortgage rates are hard to predict, it’s likely that buyers waiting for rates to come down have a long wait ahead of them, the report states, and it’s likely that buyers reentering the market, whenever that happens, will drive prices up again.

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