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May 19, 2015

How Much Longer Can Low Mortgage Rates Keep Homebuyer Affordability Afloat?

Research and Analysis

Not much has changed since we last updated our interactive affordability map: Most Americans are still waiting to see their income increase, while house prices just keep rising. However, in the first quarter of the year, low mortgage rates trumped rising house prices making it affordable for the typical family to afford a median priced home in most markets.  Thirty U.S. metros were not affordable as of the first quarter, that's down from 37 in the fourth quarter of last year and down from 36 from the same time last year. Of the markets tracked, 133 remained affordable. Of the three affordability components, nationally, house prices rose 1.6%, incomes rose a measly 0.7%, while mortgage rates declined from an average of 3.97% to 3.73% for a 30-year fixed-rate mortgage based on our survey from the previous quarter.

With inventories of for-sale homes tight, house prices are very likely to keep rising. And as markets try to anticipate the Federal Reserve's timing around rising rates; we're likely to see more volatility around mortgage rates in the coming months, similar to what we've experienced over the past few weeks.  Can housing handle higher mortgage rates? We explore this topic in more detail in our May Outlook.

Of course, how far potential buyers have to stretch (or not) to afford a home, depends on where they live, how much they put toward a down payment as well as local taxes and insurance among other things. All these factors and more can be adjusted using our interactive affordability map, including if a raise is expected this year.  So, out of 163 metros where does the typical family have to stretch the most to buy a home, and where do they have ample buying power?

The Top 5 Most Affordable Metros:
Youngstown, OH
Rockford, IL
Akron, OH
Toledo, OH
Kankabee-Bradley, IL

Top 5 Least Affordable Metros:
San Jose, CA
Honolulu, HI
San Francisco, CA
San Diego, CA
Naples-Marco Island, FL

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