Mortgages are less affordable than at any time since at least 2007, the year before the mortgage crisis, due to relentlessly high prices and still-rising mortgage rates, according to a new market report from Zillow. Demand for homes has receded as a result, which has eased price growth, slowed sales and started to give inventory a much-needed boost.
The average 3-year mortgage rate was 5.78% as of June 16, according to Freddie Mac. A new purchase of a typical U.S. home at that rate would mean monthly mortgage payments of $2,127; which is 51% higher than a year ago and up 36% year to date, according to Zillow.
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, however, falling from 20.9% annual growth in April to 20.7% in May. “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.
Sales are also slowing, the data showed—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, according to Zillow. The 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 is recovering from February lows but is still 50% below 2019 levels, the report showed.
Incomes are lagging further behind fast-rising mortgage costs, leading to the significant affordability challenges, Zillow said. April data shows monthly payments taking about 28% of homeowners’ monthly income — “dangerously close” to the 30% threshold. Over 30% is considered a cost burden.