New research from Zillow reveals that historically low mortgage rates have resulted in U.S. homeowners paying close to 40 percent less in mortgage payments per month in the December ending quarter of 2012, as opposed to what they were paying before the housing market bubble burst.
The real estate firm took into consideration past and present median home values based on its Home Value Index and median income numbers culled from the U.S. Census and the Bureau of Labor Statistics, with over 240 metropolitan areas covered. Compared to pre-bubble statistics, where U.S. homeowners’ mortgage payments took up 36.9 percent of their monthly income, only 12.6 percent of these homeowners’ monthly income went to mortgage payments as of the fourth quarter of 2012. This is largely due to mortgage rates being well within the 3 to 4 percent range as of last year.
Still, home prices have become more expensive in several markets, with monthly wages going down or remaining flat and property values increasing as the U.S. housing market continues to recover. Before the bubble burst, home buyers in America would spend about 2.6 times their median annual income on a home purchase. This increased in the December ending quarter of 2012 to three times their median annual income.
Using simple calculations, this means that American homeowners are now purchasing homes 14.5 percent more expensive in relation to their annual income, as opposed to pre-bubble figures.
‘The days of historically high levels of housing affordability are numbered,” opined Stanley Humphries, Zillow Chief Economist. “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 home buyers will have to spend more of their incomes to buy a home.”
Humphries believes that home values will need to remain flat as median incomes increase, while home values may need to decrease in some markets, pursuant to making properties more affordable for Americans in general.