Eroding home affordability carries housing bubble concerns | South Salem Real Estate


As home prices and mortgage interest rates rise, potential homebuyers are finding that fewer homes are within their financial grasp, prompting parallels to the most recent housing bubble.

A study by real estate portal Zillow has found that, for a full one-third of homes for sale nationwide in the fourth quarter, buyers would pay a larger percentage of their income toward a mortgage than in the pre-bubble era.

Zillow analyzed fourth-quarter income, mortgage and home value data. The company measured affordability by comparing how the share of an area’s median household income needed to cover the mortgage payment of a median-priced area home in the fourth quarter measured relative to the income-share needed to make a mortgage payment on a median-priced home in the same area between the years of 1985 and 2000.

While two-thirds of U.S. homes for sale were affordable in the quarter compared to the pre-bubble years, Zillow expects affordability to wane as interest rates on 30-year fixed-rate mortgages continue to rise toward an expected 5 percent over the next year. Rates on that type of mortgage have jumped close to 1 percentage point from 3.54 percent in April 2013 to 4.41 percent this week, according to Freddie Mac.

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