Payment on New Mortgages Take 46.4% of Typical Income

Annual homeownership payments ate up 46.4% of the median U.S. household income in October, a record high that is a clear sign of the affordability crisis plaguing the housing market. 

That’s according to the most recent data from the home affordability tracker published by the Federal Reserve Bank of Atlanta. The tracker uses data dating back to 2006 and calculates an average homeownership payment as a share of income. This number ticked up from September when homes bought cost an average of 46.3% of household income.

But it wasn’t just the fall—affordability worsened significantly throughout 2022. Payments, which include taxes and insurance with a 10% down payment, have skyrocketed since the beginning of 2021 because of soaring home prices and, more recently, mortgage rates.

A payment is considered “affordable” if it takes up 30% of household income or less. For instance, the average payment took up 29% of the median U.S. income in February 2020, the month before the COVID-19 emergency was declared.

Since then, soaring costs have put homeownership out of reach for many would-be buyers and slowed home sales to a crawl—the typical monthly homeownership payment was $2,682 in October, compared to $1,918 at the outset of 2022, and $1,540 just before the pandemic.

Fortunately for homebuyers, the intense cost pressures have abated since October, but only slightly. The average rate offered for a 30-year fixed mortgage peaked at just over 7% in mid-November, according to mortgage giant Freddie Mac, and has since decreased to 6.33% as of last week.

Whether the downtick was enough to encourage more buyers to jump into the market will become clear Friday when the National Association of Realtors releases data for December existing home sales.

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