- The average household now spends 31% of their income on mortgage payments, according to Black Knight.
- That’s an increase from 24% in December and the highest proportion since 2007.
- New data shows that Americans are bearing higher housing costs as mortgage rates rise.
Americans are still clamoring for homes despite rising prices, and are spending more of their paychecks on mortgages than they have since the last housing bubble.
Mortgage rates are on the rise as
raises interest rates in hopes of cooling demand throughout the economy. However, the US real estate market continues to run red hot, leaving buyers with an even higher barrier to entry.
The typical household now spends 31% of their income on mortgage payments, according to new data from Black Knight, a provider of mortgage data and technology. That is the largest turnout since 2007 and an increase from 24% at the end of last year.
The rise in the ratio of mortgage payments to income underscores the problem facing potential homebuyers in the US. Home prices soared during the pandemic as mortgage rates hit record lows and demand soared. fueled a historic housing shortage. Several housing market indicators posted the highest readings since the bubble of the late 2000s, and fears of another crash quickly surfaced.
Some signs suggest that the market is starting to cool down. Home starts unexpectedly rose in March at the fastest rate since 2006, indicating contractors are racing to meet demand.
Rising mortgage rates, one of the fastest in history, is also expected to ease the buying spree. The average rate on a 30-year fixed mortgage rose to 5.11% in the week ending Thursday, according to Freddie Mac, from 3.11% at the end of last year. Higher rates mean more expensive loans, and the rally should curb some of the buying that relied on low rates seen during the pandemic.
However, it may be some time before rising rates reduce demand. Data from Black Knight suggests buyers are willing to reach deeper into their pockets despite higher rates and are prioritizing buying homes rather than waiting for the market to normalize.
Although this has led many Americans to draw comparisons to the housing bubble of the mid-2000s, there are clear signs that the US is not repeating history, and they mostly have to do with the fact that Today’s homebuyers are in a much better financial position. .
“This is not the same market as in 2008,” Odeta Kushi, deputy chief economist at First American, previously told Insider. “It’s no secret that the housing market played a central role in the Great Recession, but this market is fundamentally different in many ways.”
While today’s market irregularities are rooted in a large imbalance between supply and demand, the housing bubble that sparked the 2008 crisis was caused by an explosion in often dubious mortgage financing.
In the mid-2000s, a combination of predatory lending practices, cheap debt, and complex financial engineering contributed to millions of borrowers being placed in mortgages they couldn’t afford. When these borrowers defaulted on their loans, it triggered a foreclosure crisis in the housing market and a credit crunch among investors who held bonds backed by their defaulted mortgages, which also led to the worst financial crisis in modern history. .
In 2022, credit standards have tightened and the subprime lending that fueled the 2008 crash is not nearly as rampant today. Buyers also have more purchasing power, as median household wealth has increased by more than 48% since 2006.
This growth helps explain why home buyers, despite historically high home prices and rapidly rising mortgage rates, continue to struggle over the limited number of homes available for sale.
With data from Black Knight indicating that buyers will not be giving up anytime soon, there may be little hope that the demand side of the market will cool down anytime soon.