With even lower interest rates, mortgage payments are increasingly unaffordable

According to a report by the Federal Reserve Bank of Atlanta, even in the current low interest-rate environment, it is not affordable for a Central American family to pay the mortgage.

A middle-income family needs to spend 32.6% of its annual income on an average-priced home, the Atlanta Fed said. And the average home price reached a record high in June 2021: the three-month average went above 40 340,000, an increase of 23.8% from June 2020.

This indicates a big problem of affordability: According to the Department of Housing and Urban Development, families who pay more than 30% of their monthly income are considered “cost-burden”. They may have difficulty getting adequate food, medical care and other necessities as most of their income is going towards housing.

The Atlanta Fed reports that lower mortgage interest rates during the entire coronavirus outbreak were the “catalyst” for the growing demand for homes. And despite rising prices due to demand, lower interest rates, along with modest income growth, kept monthly mortgage payments affordable for many buyers in 2020, according to the Atlanta Fed.

But that dynamic has changed throughout 2021. Although the 30-year fixed mortgage rate remained at an almost historic record level of 2.87% in August, according to the Atlanta Fed, rising prices are no longer offset. Buyers have hit the affordable wall.

This question is especially serious for first-time home buyers, who generally have less capital than other buyers. In a separate report, Zillow found that it now takes them a year longer to save 20% down payments than they did five years ago.

Mortgage inability is just one part of America’s housing crisis: rents are becoming lower and less affordable for many families across the country.

The increase in remote work since the onset of the epidemic has given high-income people the flexibility to go almost anywhere. This has led to an influx of wealthy buyers into markets across the country and consequently increased house prices.

Coastal cities are regularly at the top of the list of least affordable places to live in the US, and that hasn’t changed. The Fed report states that in June 2021, eight of the 10 least affordable markets in the country were in California, followed by the Seattle and New York City metro areas.

But the epidemic began to cost people more than usually affordable places. The biggest drop in affordability over the years occurred in the metro area, including Boise City, Idaho; Phoenix-Mesa-Scottsdale, A Rizona; And Austin-Round Rock, Texas.

Average home prices in those three markets rose more than 25% (meanwhile house prices in San Francisco, for example, rose 7%). Those areas are still not as expensive as New York City or Los Angeles, but locals are being offered rising prices from their hometowns.

The Atlanta Fed report said, “In most cases, the influx of home buyers from high-priced markets was driven by an affordable downturn.”