Housing affordability has decreased in the last five years and is now close to historic averages. The Housing Finance Policy Center’s housing affordability index is updated in each monthly chartbook. The index tracks the share of median family income that would be devoted to the mortgage payment on the median priced home, at the current prevailing mortgage rate (as measured by the Freddie Mac Primary Mortgage Market Survey).

TAs of June 2018, the monthly payment on the median priced house (assuming a 20 percent down payment) would require 23.3 percent of the median income - up from 18 percent six years ago.

If mortgage rates rise to 5.1 percent, the share of income would increase to the 2001-03 average of 24.4 percent. The mortgage affordability index with 3.5 percent down shows an even higher share of income devoted to mortgage payments: 26.8 percent. If rates increase to 5.1 percent, this share will increase to the 2001-03 average of 28 percent.

National Mortgage Affordability Over Time

Because affordability varies by community, we track affordability by city and rank the largest metropolitan statistical areas by how close each one is to being in a bubble on our “housing bubble watch list.”

Mortgage Affordability by MSA

The factors that are causing higher interest rates (greater demand and pressure on prices) will likely increase home prices, a trend that will be magnified by the inadequate supply of new units, a factor we don’t see changing quickly.

And we’ve talked about how the changing rental housing landscape will have a big impact on affordability, as people increasingly choose to rent, older properties continue to age, and new rental housing supply fails to meet growing demand.