Mortgage payments are getting more and more unaffordable

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Record increases in home prices are eroding the savings typically offered by low interest rates.

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Home prices are rising at a record pace, but incomes aren’t, making home ownership less and cheaper.

According to the Federal Reserve Bank of Atlanta, the median American household needs 32.1% of their income to cover the mortgage payment on an average-priced home. This is the highest since November 2008, when the same outlay would eat up 34.2% of income.

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Supercharged home prices in markets across the country are canceling out the effects of moderately high incomes and historically low interest rates, two factors that generally make a home more affordable. Prices rise at record pace For the fourth consecutive month in July, driven by a shortage of homes for sale. Higher prices require buyers to take out larger loans, essentially signing them up for years to make large mortgage payments each month.

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Atlanta Fed, CoreLogic Inc. Calculates affordability using a three-month average of average household prices from the U.S. and median household income based on census data. In July, the latest month in the Atlanta Fed’s calculations, median home prices stood at $342,350, up 23% from a year earlier. Median income was $67,031, up 3%.

Economists said the biggest impact of declining affordability would be on buyers buying their first homes, who would have to sign up for larger monthly payments, buy a less desirable home or withdraw from the market altogether.

“It’s very difficult for people to get their foot in the door of the housing market,” said Ralph McLaughlin, chief economist at home-finance startup Haus. “The question is whether this is an insurmountable obstacle or is it just that these families have to spend more of their monthly income on mortgages.”

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The dynamics were different in 2008, even though the impact—the dislocation in the housing market—was the same. Home prices were falling, and many Americans owed more on their homes than they did on their homes. What’s more, widespread job losses have weighed on household incomes for years.

Christopher Ferreris and his wife, Danielle Ferreris, have been hoping to buy a home in the Tampa, Fla., area for nearly two years. They can afford about $1,600 in monthly payments, but every home they visit requires about 25% more than the monthly payment.

“It is almost as if we have gotten into a holding pattern because of how difficult it is,” Mr. Ferreris said.

According to Zillow, the typical value of a home in Tampa was $331,000 in August, up from $265,000 at the same time last year.

Ferrerises are doing everything they can think of to save money, and Mr. Ferreris started a side business of buying and selling sports cards last year. Now he counts on it about $500 a month.

According to the Atlanta Fed, during the early months of the pandemic, homes had become more affordable. Interest rates fell. And home prices, while still rising, were not rising as fast.

but then many families, after that sitting on the edge For a few months, rushed to buy a home, yearning for more space or moving out of crowded cities. Fierce competition drove up home prices. The power began to decline.

The Atlanta Fed estimates that by early 2021, Americans will need about 29% of their income to cover a mortgage. By July, it had increased to around 32 per cent. Mortgage payments at the Atlanta Fed include principal, interest, taxes, insurance, and related costs.

“Lending mortgage rates have largely been wiped out at this point,” said Daryl Fairweather, chief economist at real-estate brokerage Redfin.

Home buyers have noticed. According to Fannie Mae, about 63% of consumers surveyed in August believed it was a bad time to buy a home. This was up from 35% in the same period last year.

To read more from The Wall Street Journal, Click here.


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