Mortgage rates have hit a 23-year high, and the median monthly principal and interest payments for homes in October have reached a historical peak, creating unprecedented financial pressure for homebuyers.
According to data from the Intercontinental Exchange (ICE), the monthly principal and interest payments for mortgages, excluding taxes, insurance, and homeowners' association fees, have exceeded $2,500 for the first time, representing an increase of $144 compared to the previous month.
Over the past two years, the typical monthly principal and interest payments have risen by 94%, amounting to an increase of $1,240. At the same time, the average interest rate for 30-year fixed-rate mortgages has reached 7.76%.
This affordability pressure is not solely due to the increase in rates. In fact, households now need to allocate around 41% of their income to cover interest and principal payments, marking a significant shift over the past 35 years.
Compared to 1984 when the average 30-year mortgage rate was 14%, the current rate has decreased to 7.5%, hitting a 39-year low.
Experts point out that the pace of house price increases is expected to slow down in the coming months, as signs of a deceleration in price growth have already emerged. However, to bring the housing market back to a more affordable level, one of the following three conditions must be met: a 4.4 percentage point decrease in the 30-year mortgage rate, a 62% increase in median household income, or a 38% decrease in house prices.
Nevertheless, the report indicates that none of these three options can completely address today's challenges on their own, and they are not likely to develop independently.
Furthermore, there are noticeable differences in the housing market situation across different regions. The most affordable real estate market is in Cleveland, where monthly affordable payments account for 25.5% of the household income. In contrast, the least affordable market is in Los Angeles, where monthly payments would consume 76.5% of the household income. This suggests a significant disparity in housing affordability between different cities in the United States.
