Today’s homebuyers are spending a higher percentage of their income on a property than they did during the pre-boom period, a study from Zillow claims.
At the end of 2012, buyers were spending three times their annual income on the purchase of a typical home, compared with 2.6 times in the pre-bubble period. Zillow said this means consumers were buying homes that were 14.5% more expensive relative to their incomes than during the pre-bubble period.
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“The days of historically high levels of housing affordability are numbered,” said Zillow chief economist Stan Humphries.
“Current affordability is almost entirely dependent on low interest rates, and there’s no doubt that rates will begin to rise in the next few years. This will have an undeniable effect on demand for housing, as homebuyers will have to spend more of their incomes to buy a home.
“Home values will have to either remain stagnant while incomes catch up or, quite possibly, home values will have to fall in some markets. This will especially be the case in some markets that have seen strong home value appreciation.”
In the period from 1985 through 1999, when rates for a 30-year fixed mortgage ranged between 6% and 13%, Americans spent 19.9% of their median monthly incomes, on average, on mortgage payments for a typical, median-priced home, according to Zillow. At the end of 4Q12, with mortgage rates in the 3% to 4% range, homeowners paid 12.6% of their monthly income on mortgage payments.
Realtor.com said that on a national basis, the median list price for single-family homes, condos, townhouses and co-ops in March was up 0.5% on a year-over-year and a month-to-month basis at $190,000.
On an annual basis, median list prices were up by 5% or more in 52 markets. For Detroit and Fresno, Calif., prices were up over 40% year-over-year.
But lenders do not appear to be overly concerned about affordability. A quarterly survey of bank risk professionals from FICO and the Professional Risk Managers’ International Association found that 71% said home prices are rising at a sustainable pace in the context of mortgage lending risk.
Almost six in 10 said they expect the supply of credit for residential mortgages to meet demand over the next six months.
