Low Mortgage Rates Are Easing Affordability, But Down Payments Are Further From Reach

SEATTLE, Oct. 29, 2020 /PRNewswire/ — Monthly mortgage payments are becoming increasingly affordable for U.S. homeowners as mortgage rates have hit record lows, a new Zillow® analysis shows. But that masks the difficulties would-be buyers face in getting into homes in the first place after extraordinary price growth has pushed prices further above incomes than they’ve been in at least the past several years. 

Homeowner households earning the median incomei paid 17.5% of their earnings toward a mortgage on the typical U.S. home in September, down from 19.6% two years earlierii. That affordability improvement is thanks to record-low mortgage rates, which have dipped as low as 2.8% this month, down from around 4.85% in October 2018iii

While more affordable monthly payments are a benefit to millions of homeowners nationwide, these rosy statistics obscure the effect of soaring home prices that have outpaced incomes by an alarming level in recent years. Saving for a down payment is a massive financial barrier for potential buyers, especially first-time buyers. More than a quarter of first-time buyers report difficulties saving for a down payment, and 40% of all buyers rely on a gift or loan from family or friends for at least part of their down paymentiv

That hurdle has gotten higher after home values have grown 38.3% since September 2014, while homeowner incomes have grown just less than half that amount (18.8%) over the same period. A typical U.S. home is now worth more than three times the median annual homeowner income, the highest it’s been since at least 2014, when Zillow’s analysis began. In January 2014, the typical home was worth about 2.6 times the median homeowner income. 

Put another way, we can look at the difference in a 20% down payment over the years. Putting 20% down on the typical home would have taken about $36,600 at the start of 2014, or 6.4 months of income for the median homeowner household. Now, that would be a roughly $52,000 down payment, which is 7.5 months of income. Zillow expects the typical U.S. home to appreciate by 7% over the next year, which would bring that down payment up another $3,600 to about $55,600. Nearly 40% of buyers with a mortgage put at least 20% downiv, which allows a buyer to avoid private mortgage insurance premiums.

“The path to homeownership, and the savings and wealth-creation benefits that come with it, has gotten harder for many buyers,” said Zillow senior economist Chris Glynn. “Saving for a down payment is the single biggest challenge many potential home buyers face, and it is especially difficult when incomes fail to keep pace with home values. Even still, many buyers sense that prices will slip further out of reach in coming years and desperately want to lock in low mortgage rates while they can, which is likely contributing to the urgency we’re seeing in the market. The current environment is a double win for longtime homeowners who have enjoyed big equity gains and are now able to refinance their mortgage to lower their monthly payments.”

Among the 50 largest U.S. metros, down payments are most in reach for potential buyers in Cleveland, where a 20% down payment on the typical home is equal to 5.1 months of income for the median homeowner household. Milwaukee, Pittsburgh and Memphis have the next most affordable homes by this measure, each at 5.2 months of income. Homes are most difficult to save for in high-priced California metros, led by San Francisco (17.1 months of income), San Jose (16.1), Los Angeles (14.9) and San Diego (13.2). 

At current rates, mortgage payments are most affordable in Louisville (12.3% of income), Birmingham (12.5%) and Indianapolis (12.7%). They are the most burdensome in San Francisco (34.4%), San Jose (31.6%) and Los Angeles (29.9%). 

Had pre-pandemic trends held, renters were projected to spend 29.9% of their income on rent in September, the lowest share since at least 2014. But because renters have been hit hard by income loss during the coronavirus pandemic, it’s likely the share is considerably higher. The spread between rent and mortgage affordability illustrates the financial benefits of homeownership — the ability to build equity, often while also spending relatively less on monthly housing payments, is a key avenue for building long-term wealth. 

Metropolitan Area*



Typical Home Value –  September 2020

Mortgage Affordability – September 2020

Median Monthly Homeowner Income – September 2020

 Estimate

Estimated Monthly Payment on Typical Home



United States

$259,906

17.5%

$6,973

$1,217



New York, NY

$497,090

23.9%

$9,923

$2,375



Los Angeles, CA

$711,361

29.9%

$9,555

$2,854



Chicago, IL

$253,512

16.4%

$8,149

$1,336



Dallas-Fort Worth, TX

$270,907

17.7%

$8,288

$1,466



Philadelphia, PA

$265,912

16.0%

$8,253

$1,317



Houston, TX

$228,576

16.1%

$7,841

$1,261



Washington, DC

$455,038

16.8%

$11,484

$1,934



Miami-Fort Lauderdale, FL

$308,911

22.9%

$6,512

$1,491



Atlanta, GA

$252,586

14.4%

$7,921

$1,137



Boston, MA

$520,206

22.4%

$10,463

$2,341



San Francisco, CA

$1,113,664

34.4%

$13,031

$4,480



Detroit, MI

$193,270

14.8%

$6,580

$973



Riverside, CA

$404,320

23.8%

$7,358

$1,750



Phoenix, AZ

$309,543

17.7%

$7,125

$1,264



Seattle, WA

$555,689

23.0%

$10,221

$2,350



Minneapolis-St. Paul, MN

$307,156

16.9%

$8,583

$1,448



San Diego, CA

$632,264

26.7%

$9,597

$2,559



St. Louis, MO

$188,845

13.5%

$6,901

$930



Tampa, FL

$236,574

19.1%

$5,978

$1,139



Baltimore, MD

$307,675

15.0%

$9,076

$1,359



Denver, CO

$462,724

21.8%

$8,782

$1,911



Pittsburgh, PA

$172,719

13.2%

$6,590

$867



Portland, OR

$436,053

21.6%

$8,756

$1,893



Charlotte, NC

$254,932

16.4%

$6,785

$1,115



Sacramento, CA

$449,280

21.5%

$8,816

$1,896



San Antonio, TX

$221,860

18.2%

$6,424

$1,171



Orlando, FL

$266,724

17.9%

$7,001

$1,251



Cincinnati, OH

$201,822

13.7%

$7,258

$990



Cleveland, OH

$166,936

13.4%

$6,561

$880



Kansas City, MO

$218,314

14.3%

$7,475

$1,070



Las Vegas, NV

$302,133

17.8%

$7,035

$1,249



Columbus, OH

$223,010

15.3%

$7,474

$1,147



Indianapolis, IN

$199,477

12.7%

$7,210

$912



San Jose, CA

$1,219,074

31.6%

$15,176

$4,797



Austin, TX

$365,091

19.4%

$9,566

$1,851



Virginia Beach, VA

$257,117

15.3%

$7,373

$1,131



Nashville, TN

$295,317

17.4%

$7,311

$1,273



Providence, RI

$338,536

20.2%

$8,054

$1,623



Milwaukee, WI

$200,213

13.2%

$7,749

$1,023



Jacksonville, FL

$242,663

16.6%

$6,779

$1,128



Memphis, TN

$165,614

12.9%

$6,316

$812



Oklahoma City, OK

$170,113

13.5%

$6,327

$851



Louisville, KY

$190,184

12.3%

$7,054

$867



Hartford, CT

$246,266

15.4%

$8,482

$1,309



Richmond, VA

$259,290

15.1%

$7,318

$1,108



New Orleans, LA

$215,442

17.2%

$5,902

$1,013



Buffalo, NY

$186,292

15.0%

$6,914

$1,038



Raleigh, NC

$299,061

15.2%

$8,538

$1,301



Birmingham, AL

$181,968

12.5%

$6,162

$769



Salt Lake City, UT

$411,548

20.5%

$8,198

$1,676



*Table ordered by market size 

 

About Zillow
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i Estimates for median household income were produced using annual homeowner income figures from the American Community Survey and projecting out based on the historical relationship with monthly Bureau of Labor Statistics figures.
ii Assuming the typical home value in the U.S. per the August 31 Zillow Home Value Index (ZHVI), and a 30-year mortgage at the prevailing interest rate with a 20% down payment. Estimated monthly payment includes mortgage, property taxes and homeowners insurance.
iii Freddie Mac, Primary Mortgage Market Survey, October 22, 2020
iv Zillow Consumer Housing Trends Report, 2020

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SOURCE Zillow

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