Homeownership became less affordable across the country in 2018 while renting became marginally more affordable, according to a new report by Zillow. Amid worsening affordability in the U.S., homeowners in Los Angeles and renters in the largest Florida metros have the least cash left over after paying for housing, the report found. On the other hand, people in the Washington, D.C., metro area have the most money left over after they pay their mortgage.
Based on the median annual gross income and mortgage payment, homeowners in Washington, D.C., have almost $7,000 of their monthly income remaining after paying for their house—the most out of the 35 largest housing markets. Typical renters in Washington, D.C., have nearly $6,500 left over from their income after their monthly rent payment, second only to San Jose at more than $6,800.
"Finding that balance where housing costs leave a comfortable amount of spending money is tricky, especially when the prices of life's non-housing essentials also vary widely by market," said Skylar Olsen, Zillow Director of Economic Research.
According to the report, the outlook is grim for those in Los Angeles considering California's substantial income tax rates, which cuts into income left over for variable cost-of-living expenses like transportation, child care, and education.
Zillow indicated that overall affordability for home buyers worsened last year due to rising mortgage rates and continued strong home value appreciation throughout most of 2018. At its November peak, the average 30-year fixed rate in the U.S. had increased to 4.94 percent from 3.95 percent at the beginning of the year. Now that the mortgage rates have reversed course declining 4.4 percent, home value appreciation in the nation's biggest markets is cooling rapidly. This is a signal that mortgage affordability could improve in the coming months, the analysis forecasts.
An estimated 17.5 percent of the median income is required for a mortgage payment on the typical home in the U.S. This has recorded an increase up from 15.4 percent in the last quarter of 2017, however, remains below the historic average of 21 percent from the late 1980s and 1990s, the report revealed. Using this traditional measure of housing affordability, less expensive Midwest markets such as Pittsburgh, St. Louis and Cincinnati top the list. Speaking of income spent by renters, Zillow stated that payments accounted for more than 30 percent of the median income in 13 large U.S. metros, widely considered the standard for unaffordable housing costs.
Read the full report here.