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Mortgage rates down, price-income ratios on the rise

Although markedly low mortgage rates are helping keep monthly payments affordable for homeowners and potential buyers, a rise in price-income ratios presents a challenge for first-time buyers saving for a down payment.

Ultra-low mortgage interest rates are helping to keep monthly payments remarkably affordable for would-be home buyers and homeowners alike.

However, these same low rates are also helping to mask an alarming rise in price-income ratios, keeping homes affordable on paper while doing nothing in practice to help buyers put themselves in position to buy in the first place.

A would-be home buyer earning the median income for buyers ($83,674) and looking to purchase the typical U.S. home in September — assuming a 20 percent down payment and 30-year, fixed-rate mortgage at prevailing rates — could expect to spend 17.5 percent of their monthly income on a mortgage payment, taxes and insurance.

The same buyer could have expected to spend 18.2 percent and 19.6 percent of their income each month on their core housing payments in September 2019 and September 2018, respectively, according to a Zillow analysis of housing costs and projected income growth over the past two years.