Mortgage Payments Least Affordable for Low-Income Earners

Low-income people can expect to spend more than 30 percent of their paycheck on house payments in a third of large U.S. markets

- Low-income earners can expect to spend 22.7 percent of their income on a mortgage payment.

- High-income earners can expect to spend 11.5 percent of their monthly household income on a mortgage payment.

- Low-income earners are effectively priced out of buying a home in most large California markets.

News provided by

Zillow

Jul 11, 2016, 08:00 ET

SEATTLE, July 11, 2016 /PRNewswire/ -- People with low incomes spend nearly 23 percent of their income on monthly mortgage payments, compared to high-income earners, who spend 11.5 percent of their income on monthly house payments, according to a new Zillow® analysisⁱ.

Compared to the past, mortgage payments are very affordable for the average American because of persistently low mortgage ratesⁱⁱ. But that doesn't tell the whole story. To see how different groups are faring in terms of housing affordability, Zillow divided income earners and homes into three tiers, assuming that low-income earners buy less expensive homes, median earners buy median homes, and high-income earners buy more expensive homes in the top third of the market.

The results show that lower earners carry a heavier burden when it comes to making monthly payments. Their incomes have been largely stagnant, while low-priced homes are gaining value fastest. Low-income earners could expect to spend nearly 40 percent of their income on housing in 2007. For people in the top third of incomes, the peak was in 2006, when they could expect to spend just over 20 percent of their income on a mortgage.

In some large markets, the amount low-income workers spend on housing is much greater. In Los Angeles, people who earn the least could expect to spend more than three-quarters of their income on housing alone. For the top earners, mortgage payments only took up 27.5 percent of their income – a difference of nearly 50 percentage points.

"Housing affordability is a different story for low-income Americans than for median and high-earning people," said Zillow Chief Economist Dr. Svenja Gudell. "They are spending much more of their income on housing, even when they buy the least expensive homes. On top of that, we know that the least expensive homes are gaining value the fastest and are the most scarce, making it hard to find a home to buy even if you can afford one. From a high level view, mortgage affordability looks pretty good across most of the country, but it's not good for everyone."

The cost of housing exceeds 30 percent of the median income, the traditional rule for housing affordability, in about one-third of major markets for lower wage earners, and is above 50 percent in Los Angeles, San Jose, San Francisco, and San Diego. By contrast, San Jose is the only place where high-wage earners can expect to spend more than 30 percent of their income on housing.

	Percent of monthly income spent on mortgage payment
Metro Area	Bottom Tier	Middle Tier	Top Tier
United States	22.7%	15.0%	11.5%
New York/Northern New Jersey	48.0%	25.1%	18.4%
Los Angeles-Long Beach-Anaheim, CA	76.1%	39.5%	27.5%
Chicago, IL	22.1%	13.8%	10.9%
Dallas-Fort Worth, TX	18.6%	12.7%	10.4%
Philadelphia, PA	21.9%	14.4%	10.9%
Houston, TX	19.8%	12.3%	9.8%
Washington, DC	26.1%	17.4%	14.2%
Miami-Fort Lauderdale, FL	28.0%	19.7%	15.7%
Atlanta, GA	17.1%	12.4%	10.7%
Boston, MA	44.1%	21.8%	16.0%
San Francisco, CA	68.4%	39.8%	29.7%
Detroit, MI	10.3%	9.9%	9.0%
Riverside, CA	39.7%	23.7%	16.2%
Phoenix, AZ	27.9%	17.2%	13.3%
Seattle, WA	38.1%	21.8%	17.7%
Minneapolis-St Paul, MN	24.6%	13.6%	10.5%
San Diego, CA	59.7%	32.4%	23.1%
St. Louis, MO	14.6%	11.0%	9.2%
Tampa, FL	18.3%	14.6%	11.5%
Baltimore, MD	24.1%	15.0%	12.2%
Denver, CO	33.6%	19.9%	14.4%
Pittsburgh, PA	15.1%	10.7%	8.5%
Portland, OR	40.2%	21.5%	15.4%
Charlotte, NC	18.9%	12.8%	10.9%
Sacramento, CA	43.9%	23.5%	15.6%
San Antonio, TX	18.1%	12.3%	9.6%
Orlando, FL	21.0%	16.1%	11.7%
Cincinnati, OH	18.4%	11.1%	8.8%
Cleveland, OH	16.5%	11.0%	8.8%
Las Vegas, NV	24.2%	16.6%	12.5%
Columbus, OH	16.1%	11.7%	9.4%
San Jose, CA	71.2%	40.5%	33.3%
Austin, TX	29.2%	16.5%	13.3%
Virginia Beach, VA	25.8%	15.9%	12.2%

Zillow

Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ:Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

ⁱ Zillow calculated affordability by income and price tier by determining the monthly payment on the median-priced home in each of three price tiers for the US as a whole and individual Metro areas. The analysis then divided household incomes in three tiers, and determined what percentage the median home buyer in each price tier would have to spend on a monthly house payment for the median home value in the corresponding tier. Zillow assumed buyers got a 30-year mortgage and made a 20 percent down payment. Income data is from the 2014 American Community Survey and home value data is the ZHVI from June 2015.
ⁱⁱ Median homebuyers can expect to spend 15 percent of their income on a mortgage payment compared to 21.2 percent historically (1985-1999).

SOURCE Zillow