Average homebuyer budget down $21K amid rising rates

If rates hit 6% then impact will be significant

By Steve Randall

01 Jan 2019

A homebuyer earning the median US income is finding their choice of affordable homes falling as mortgage rates rise.

Assuming they use 30% of their income for monthly mortgage payments, they would have been able to afford a home up to $393,700 a year ago. But while rates were 4.15% in January 2018, as we begin a new year, an analysis from Zillow finds that the budget is slashed to $372,000 due to 4.63% rates.

If mortgage rates climb to 6% in 2019, that homebuyer will see the ceiling for their budget cut to $319,200 if their income remains the same and they stick to using 30% for mortgage payments.

The figures reveal that those buyers could be priced out of almost 50,000 US homes.

"In the end, the best time to buy a home is always when the time is right for an individual buyer – often when they're financially ready, when they're relocating to a new area or a major life event requires them to upsize or downsize. It's also important to remember that rates on a typical mortgage remain very low by historic standards – especially given the type of strong economic growth we've been experiencing."

The impact of rising rates cuts buyers’ budgets even more in expensive markets. For example, in San Jose, the nation's most expensive metro, a 6%mortgage rate would mean buyers making the $118,400 median household income, would see their budget reduced by $102,100 than they might consider now to maintain monthly mortgage payments at 30% of income.

In each of the 35 largest metro areas in the U.S., the drop in buying power is at least $46,500.

Metropolitan Area	Median Household Income	Median Home Value	Affordable Home at Current Rate	Affordable Home at 5 Percent Rate	Affordable Home at 6 Percent Rate
United States	$61,240	$222,800	$372,000	$337,100	$319,200
New York, NY	$76,582	$435,700	$465,200	$421,500	$399,200
Los Angeles, CA	$70,591	$650,400	$428,800	$388,500	$367,900
Chicago, IL	$70,123	$223,600	$426,000	$385,900	$365,500
Dallas-Fort Worth, TX	$67,605	$237,800	$410,700	$372,100	$352,400
Philadelphia, PA	$70,321	$231,100	$427,200	$387,000	$366,500
Houston, TX	$64,822	$203,200	$393,800	$356,800	$337,900
Washington, DC	$101,124	$403,000	$614,300	$556,600	$527,100
Miami, FL	$54,135	$281,700	$328,800	$297,900	$282,200
Atlanta, GA	$66,202	$215,000	$402,100	$364,400	$345,100
Boston, MA	$87,854	$462,000	$533,700	$483,500	$457,900
San Francisco, CA	$104,496	$963,000	$634,800	$575,100	$544,700
Detroit, MI	$59,496	$158,400	$361,400	$327,500	$310,100
Riverside, CA	$62,052	$363,900	$376,900	$341,500	$323,400
Phoenix, AZ	$62,167	$262,000	$377,600	$342,200	$324,000
Seattle, WA	$84,631	$486,400	$514,100	$465,800	$441,100
Minneapolis, MN	$77,808	$265,200	$472,600	$428,200	$405,600
San Diego, CA	$75,831	$592,800	$460,600	$417,400	$395,300
St. Louis, MO	$63,468	$165,600	$385,500	$349,300	$330,800
Tampa, FL	$53,987	$211,500	$327,900	$297,100	$281,400
Baltimore, MD	$81,722	$267,400	$496,400	$449,800	$426,000
Denver, CO	$77,178	$403,800	$468,800	$424,800	$402,300
Pittsburgh, PA	$60,064	$143,400	$364,900	$330,600	$313,100
Portland, OR	$73,805	$393,700	$448,300	$406,200	$384,700
Charlotte, NC	$63,841	$203,900	$387,800	$351,400	$332,800
Sacramento, CA	$68,440	$403,400	$415,700	$376,700	$356,700
San Antonio, TX	$59,287	$190,500	$360,100	$326,300	$309,000
Orlando, FL	$55,315	$233,700	$336,000	$304,400	$288,300
Cincinnati, OH	$64,049	$165,900	$389,100	$352,500	$333,800
Cleveland, OH	$55,190	$144,400	$335,300	$303,800	$287,700
Kansas City, MO	$65,266	$189,100	$396,500	$359,200	$340,200
Las Vegas, NV	$57,909	$277,300	$351,800	$318,700	$301,800
Columbus, OH	$63,999	$187,400	$388,800	$352,200	$333,600
Indianapolis, IN	$60,431	$161,600	$367,100	$332,600	$315,000
San Jose, CA	$118,427	$1,251,200	$719,400	$651,800	$617,300
Austin, TX	$75,717	$304,200	$459,900	$416,700	$394,700