Low mortgage rates keep home costs within an acceptable range

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Median home ownership costs remain within a normal range, but are approaching the point where lenders might start to hesitate.

Low mortgage rates and rising incomes have kept monthly housing costs largely at affordable levels, but those costs have approached the limits of what lenders recommend.

The top costs of owning a typical home hit nearly 25% of the average U.S. salary in the third quarter of the year, up from 24% in the previous quarter and 22% at the same time in 2020, according to a new report from Attom Data Solutions.

“This pushes average workers closer and closer to the point where lenders might be reluctant to give them a mortgage,” Todd Teta, Attom’s chief product officer, said in the report. “With a lot of uncertainties as to how the pandemic and many other forces could still affect the economy, affordability remains a crucial measure of market stability that could easily continue in the same direction or move back in. other way.”

Traditionally, lenders have wanted borrowers to keep their main real estate costs – mortgage payment, property taxes, and home insurance – to less than 28% of the amount of money they bring in each year. This makes sure that the borrower is able to make the payments on the loan.

But as Attom’s data shows, low interest rates and rising incomes have not been enough to completely counter the effects of soaring US home price growth over the past year. Home prices rose 18% year over year, hitting a record high of $ 315,500 for the median home.

After accounting for income growth, homeownership costs became less affordable than their historical averages in 3 out of 4 counties in the United States.

This level of change in housing affordability across the country is high but not historic. A similar share of counties was found to be less affordable than historical averages in the third quarter of 2008, Attom said.

“The typical median-priced home in the United States remains affordable for workers earning an average wage, despite prices continuing to skyrocket,” Teta said in the report. “Very low interest and rising wages continue to be the main reasons. But affordability continues to move in the wrong direction as the housing market boom continues to roar. “

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