By S.E. Slack
Mortgage rates, currently hovering just above 4 percent, are expected to increase in the next few years. If you’re planning to purchase a home, now might be the best time.
Real estate firm Zillow recently measured home affordability by looking at how much of a person’s monthly income is spent on a mortgage payment.
“As mortgage rates have risen above 4 percent, buying a home has become less affordable as monthly payments are rising due to interest rates and home value appreciation,” says Svenja Gudell, director of economic research at Zillow.
Ohioans, she says, are in a particularly affordable part of the U.S. Homeowners use approximately 12 percent of their income for mortgage payments. In some parts of the state, affordability is even higher: Lima homeowners spend about 9 percent of their income on a mortgage while Toledo homeowners, for instance, spend 10 percent of their income on their home. Larger cities like Columbus are a bit more expensive; homeowners there spend 12 percent of their hard-earned money on their mortgage.
As mortgage rates increase over the next year, though, experts say affordability could become a problem for some Ohioans. At 5 percent interest, affordability will mean 13 percent of a household’s income goes to a mortgage. At 6 percent interest, affordability moves to 15 percent; at 7 percent interest that number could hit 17 percent or higher.
Still, that’s far below the national historic average of 20 percent affordability, says Gudell.
Because mortgage rates are currently forecasted to remain below 5 percent for the remainder of this year, Gudell believes most homes will still remain affordable in Ohio.
Homeowners on the West Coast aren’t as fortunate, she adds. Her study shows that, of the top 10 most expensive metro areas in the U.S., nine are in California. While inland California locales remain relatively reasonable with current affordability rates at 15 percent, homeowners in sunny, coastal locations in and around Los Angeles spend about 40 percent of their income on monthly housing payments.