Home Ownership Still Elusive Even with Low Interest Rates

Even with low mortgage interest rates a median-income household would still need to spend nearly a third of its income on a median-priced home, according to a report from the Federal Reserve Bank of Atlanta.

That signals a big affordability issue: Families paying more than 30% percent of their monthly income for housing are considered “cost burdened,” according to the Department of Housing and Urban Development. They may have trouble being able to pay for adequate food, medical care and other necessities because so much of their income is going toward housing.

The Atlanta Fed reports that low mortgage interest rates throughout the coronavirus pandemic were a “catalyst” for increased housing demand. And though prices grew due to demand, the low interest rates, coupled with modest income growth, kept monthly mortgage payments affordable for many buyers in 2020, according to the Atlanta Fed.
But that dynamic has shifted throughout 2021. Though the 30-year fixed mortgage rate stood at a near historic record low of 2.87% in August, according to the Atlanta Fed, that is no longer offsetting the increased prices. Buyers have hit an affordability wall.

The issue is particularly acute for first-time homebuyers, who typically have less capital than other buyers. In a separate report, Zillow found that it now takes them a year longer to save for a 20% down payment than it did just five years ago.

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