Housing affordability hits 15-year low as prices, mortgage rates rise

Rhea-AI Summary

As of June 2022, housing affordability remains a critical issue, with mortgage payments surpassing rent in 45 of the 50 largest U.S. metros, driven by rising prices and interest rates. The typical U.S. home price is $349,816, reflecting a 20.7% annual growth, but this is slowing down from 20.9% in April. Mortgage rates have climbed to 5.78%, resulting in monthly payments of $2,127—51% higher than last year. The market shows signs of reduced demand, with inventory still 50% below 2019 levels, and nearly 20% fewer homes going under contract compared to 2021.

Positive

• Annual home price growth slowed slightly from 20.9% in April to 20.7% in May, indicating potential stabilization in the housing market.
• Inventory of for-sale listings is recovering, rising from February lows, though it remains below 2019 levels.

Negative

• Mortgage payments are now 51% higher than a year ago, causing significant affordability challenges.
• The number of homes under contract fell nearly 20% compared to 2021, showcasing reduced demand for homes.
• Monthly payments now consume about 28% of homeowners' income, nearing the 30% threshold considered a cost burden.

Demand wavers in some areas as housing costs mount

• Mortgage payments are higher than rent in 45 of the 50 largest U.S. metros, up from 22 in 2019.
• Price appreciation is finally starting to slow, easing slightly from 20.9% annual growth in April to 20.7% in May.
• Inventory continues to recover from February lows, but is still 50% below 2019 levels.

SEATTLE, June 21, 2022 /PRNewswire/ -- Ballooning mortgage costs, driven by skyrocketing prices and interest rates, have made mortgages less affordable than at any time since at least 2007. Demand for homes has pulled back in response, easing price growth, slowing sales and boosting inventory, according to the latest market report¹ from Zillow®.

Mortgage rates have shot up in early June, averaging 5.78%² as of Thursday. A new purchase of a typical U.S. home³ at that rate would mean monthly mortgage payments of $2,127, that's 51% higher than a year ago and up 36% year to date.  

"Mortgage rates took an unprecedented leap skyward over the past two weeks and quickly multiplied housing costs as they rose," said Zillow economist Nicole Bachaud. "We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market's needed rebalancing. While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled." 

Incomes are lagging further behind fast-rising mortgage costs, leading to the most significant affordability challenges in the past 15 years. The latest data available from April shows monthly payments⁴ taking about 28% of homeowners' monthly income — dangerously close to the 30% threshold, beyond which is considered a cost burden. With rates now far above April's average, that share is at or very near 30% already. Zillow data for this metric is available through 2007; the Atlanta Federal Reserve's Home Ownership Affordability Monitor shows affordability bottoming out in July 2006. 

Although rents have soared since the start of 2021, the rapidly rising cost of a mortgage still makes rent the cheaper option nearly everywhere. A typical rent payment in May is more expensive than a mortgage payment (with a 20% down payment), including taxes and insurance, in just five of the 50 largest U.S. metros. In May 2019, rent was more expensive in 28 of those metros. 

After annual price appreciation set new record highs for 13 straight months, home values finally turned the corner in May to show a slightly slower pace of annual growth: 20.7%, down from 20.9% in April. 

"Arriving in the middle of the spring selling season, this deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges," said Jeff Tucker, senior economist at Zillow. 

The trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever hotter to somewhat cooler price growth. The typical U.S. home is now worth $349,816 — nearly $60,000 more than last year and almost $95,000 higher than in May 2020. 

Sales are also slowing. The number of for-sale listings that went under contract in May is down nearly 20% from 2021, when that activity was near a four-year peak, and is 2% below that of May 2019. The median time on market for new listings is just seven days — holding steady from April and even with last May.

Share of listings with a price cut is ticking up as well — rising to 11.5% in May from a recent low of 8.5% in February. 

Inventory of for-sale listings continued its steady spring climb and now sits just 14.2% below its year-ago level. Still, that leaves buyers with 50% fewer options than they had to choose from in May 2019. 

Typical rents are up to $1,979 in the U.S. and still rising fast, with 1.2% monthly growth that slightly edged April's 1.1% month-over month rise. To put this into context, the average monthly May rent growth from 2014 to 2019 was 0.7%. Annual rent appreciation for May is 15.9%, easing off a peak of 17.2% in February. 

Metropolitan Area*	Zillow Home Value Index (ZHVI)	ZHVI Year- Over- Year (YoY) Change	Monthly Mortgage Payment on a Typical Home**	Monthly Mortgage Payment on a Typical Home YoY Change	Newly Pending Transactions YoY Change	Zillow Observed Rent Index (ZORI)	ZORI YoY Change	Share of listings with a Price Cut
United States	$349,816	20.7 %	$2,031	47.3 %	-19.6 %	$1,979	15.9 %	11.5 %
New York, NY	$609,114	13.0 %	$3,595	37.5 %	-23.6 %	$3,121	20.8 %	9.1 %
Los Angeles, CA	$948,029	20.6 %	$4,870	51.6 %	-23.9 %	$2,922	16.1 %	9.6 %
Chicago, IL	$309,940	14.6 %	$1,983	37.1 %	-20.1 %	$1,945	11.0 %	13.6 %
Dallas–Fort Worth, TX	$390,505	30.3 %	$2,549	55.3 %	-5.7 %	$1,791	17.7 %	10.2 %
Philadelphia, PA	$332,772	13.5 %	$2,026	37.2 %	-20.6 %	$1,846	11.2 %	12.8 %
Houston, TX	$306,192	23.2 %	$2,032	46.4 %	-21.1 %	$1,575	11.7 %	13.4 %
Washington, DC	$554,922	10.2 %	$2,980	37.1 %	-21.9 %	$2,231	11.6 %	11.0 %
Miami–Fort Lauderdale, FL	$445,739	30.0 %	$2,651	57.9 %	-32.7 %	$2,862	31.0 %	9.3 %
Atlanta, GA	$375,674	30.5 %	$2,111	60.5 %	-26.3 %	$1,938	16.7 %	12.4 %
Boston, MA	$659,089	15.0 %	$3,709	41.4 %	-25.8 %	$2,788	12.1 %	8.0 %
San Francisco,CA	$1,500,189	18.5 %	$7,702	49.0 %	-16.5 %	$3,214	10.3 %	8.3 %
Detroit, MI	$241,645	15.0 %	$1,491	38.6 %	-14.5 %	$1,423	11.3 %	11.7 %
Riverside, CA	$585,904	26.0 %	$3,202	56.0 %	-16.5 %	$2,613	15.9 %	12.6 %
Phoenix, AZ	$476,098	29.0 %	$2,487	61.6 %	-12.2 %	$1,937	19.1 %	13.3 %
Seattle, WA	$794,576	24.8 %	$4,269	55.2 %	-8.4 %	$2,265	15.5 %	10.0 %
Minneapolis –St. Paul, MN	$377,615	12.3 %	$2,203	37.0 %	-18.8 %	$1,657	6.5 %	10.3 %
San Diego, CA	$936,472	26.2 %	$4,857	58.2 %	-18.0 %	$2,999	19.7 %	10.6 %
St. Louis, MO	$242,392	14.7 %	$1,468	38.7 %	-18.2 %	$1,281	11.3 %	9.5 %
Tampa, FL	$375,460	36.5 %	$2,233	65.8 %	-18.5 %	$2,089	25.2 %	12.9 %
Baltimore, MD	$374,947	11.1 %	$2,078	37.1 %	-18.0 %	$1,808	9.8 %	11.9 %
Denver, CO	$646,964	23.6 %	$3,394	54.5 %	-8.3 %	$1,988	14.2 %	11.2 %
Pittsburgh, PA	$212,781	11.8 %	$1,313	34.8 %	-16.8 %	$1,361	8.4 %	13.8 %
Portland, OR	$588,606	18.7 %	$3,222	46.8 %	-19.5 %	$1,873	12.5 %	12.6 %
Charlotte, NC	$380,090	31.1 %	$2,090	62.1 %	-25.5 %	$1,779	17.7 %	12.1 %
Sacramento, CA	$623,735	21.0 %	$3,341	50.6 %	-14.2 %	$2,281	10.1 %	14.9 %
San Antonio, TX	$335,423	25.4 %	$2,145	50.1 %	-25.0 %	$1,469	14.9 %	12.3 %
Orlando, FL	$386,180	33.4 %	$2,238	62.9 %	-20.5 %	$2,040	23.7 %	10.6 %
Cincinnati, OH	$259,655	16.0 %	$1,567	40.4 %	-16.6 %	$1,455	11.9 %	10.4 %
Cleveland, OH	$216,396	15.1 %	$1,390	37.7 %	-14.3 %	$1,370	11.0 %	10.3 %
Kansas City, MO	$285,599	15.6 %	$1,723	40.0 %	-18.8 %	$1,347	11.0 %	8.4 %
Las Vegas, NV	$446,534	32.4 %	$2,354	65.3 %	-16.7 %	$1,847	18.8 %	13.7 %
Columbus, OH	$295,211	16.7 %	$1,852	40.3 %	-13.8 %	$1,440	12.3 %	9.1 %
Indianapolis, IN	$266,890	20.3 %	$1,520	47.6 %	-11.5 %	$1,501	13.2 %	10.8 %
San Jose, CA	$1,706,565	22.4 %	$8,664	54.4 %	-20.8 %	$3,295	12.1 %	8.1 %
Austin, TX	$599,525	32.4 %	$3,724	59.4 %	-28.9 %	$1,869	18.7 %	9.6 %
Virginia Beach, VA	$321,842	14.1 %	$1,774	41.0 %	-2.9 %	$1,607	11.0 %	7.7 %
Nashville, TN	$442,418	33.1 %	$2,400	65.2 %	-30.2 %	$1,840	18.4 %	12.5 %
Providence, RI	$444,314	16.3 %	$2,637	41.3 %	-27.3 %	$1,946	15.3 %	8.3 %
Milwaukee, WI	$271,326	11.8 %	$1,695	34.4 %	-19.6 %	$1,186	7.5 %	8.3 %
Jacksonville, FL	$363,998	33.1 %	$2,099	62.8 %	-25.7 %	$1,778	19.2 %	12.4 %
Memphis, TN	$228,061	20.6 %	$1,375	46.1 %	4.8 %	$1,536	12.6 %	9.5 %
Oklahoma City, OK	$213,799	18.3 %	$1,308	42.8 %	-20.1 %	$1,335	11.9 %	10.6 %
Louisville, KY	$238,698	13.8 %	$1,356	39.6 %	-18.6 %	$1,279	11.4 %	13.0 %
Hartford, CT	$318,367	14.4 %	$2,055	36.7 %	-31.2 %	$1,628	11.1 %	8.3 %
Richmond, VA	$326,990	13.2 %	$1,759	40.7 %	-22.2 %	$1,591	12.8 %	6.8 %
New Orleans, LA	$266,858	14.3 %	$1,552	39.5 %	-16.0 %	$1,522	16.0 %	16.0 %
Buffalo, NY	$246,213	17.7 %	$1,657	39.5 %	-10.4 %	$1,260	10.0 %	8.2 %
Raleigh, NC	$456,241	37.3 %	$2,494	69.9 %	-28.0 %	$1,742	16.9 %	9.3 %
Birmingham, AL	$237,845	17.8 %	$1,271	46.6 %	6.0 %	$1,343	11.0 %	10.8 %
Salt Lake City, UT	$612,118	27.4 %	$3,183	59.7 %	-38.4 %	$1,712	17.3 %	15.5 %

*Table ordered by market size

**Includes principal, interest, taxes and insurance, assuming a 30-year fixed-rate mortgage with a 20% down payment and 5.23% interest rate on a home priced at the Zillow Home Value Index, or typical home value, for that area in May.

¹   The Zillow Real Estate Market Report is a monthly overview of the national and local real estate markets. The reports are compiled by Zillow Research. For more information, visit www.zillow.com/research.
²  Based on data from Freddie Mac
³ Assuming a new loan on a house priced at Zillow's Home Value Index in May of $349,816, using a 20% down payment and a 30-year fixed-rate mortgage at 5.78%, includes taxes and insurance.
⁴ Assuming a new loan on a house priced at Zillow's Home Value Index in April of $344,773, using a 20% down payment and a 30-year fixed-rate mortgage at 4.98%, includes taxes and insurance

About Zillow Group

Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life's next chapter. As the most visited real estate website in the United States, Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and ease. 

Zillow Group's affiliates and subsidiaries include Zillow®,, Zillow Premier Agent®, Zillow Home Loans™, Zillow Closing Services™, Trulia®, Out East®, ShowingTime®, Bridge Interactive®, dotloop®, StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).

 

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SOURCE Zillow

FAQ

How have mortgage rates affected home affordability in June 2022 for ZG,Z?

Mortgage rates have surged to 5.78%, making monthly payments 51% higher than last year, significantly impacting home affordability.

What is the current median home price according to Zillow for ZG,Z?

The typical U.S. home price is currently $349,816, reflecting a year-over-year increase of 20.7%.

How much have home sales declined in 2022 for ZG,Z?

The number of homes going under contract in May 2022 is down nearly 20% from 2021.

What percentage of income do homeowners spend on mortgage payments in June 2022 for ZG,Z?

Homeowners are spending about 28% of their income on mortgage payments, which is dangerously close to the 30% cost burden threshold.

What is the trend in the housing market for ZG,Z as of June 2022?

The housing market is showing signs of waning demand, with slowing price growth and increasing inventory.