As the Federal Reserve’s expected decision to raise interest rates in the second half of 2015 may result in a rise in mortgage rates and home prices continue appreciating, it may become even harder to purchase a home this year. However, Realtor.com’s first-ever Mortgage Affordability Report does have some information on where budget-conscious consumers can find a cheap new home, and which markets these consumers should avoid due to the premium home pricing in the area.
“Over the last 10 years, we have seen marketplace gyrations ranging from bubble to burst to recovery to stabilization, and we are now seeing a market of extremes on the affordability front,” said Realtor.com chief economist Jonathan Smoke in a statement. “Buyers, especially first-time home buyers might feel more motivated as the overall market continues to improve, and this report provides potential buyers with local insight that is both informative and instructive.”
With that said, Realtor.com’s analytics show Detroit as the most affordable metropolitan market in the United States, with 30-year fixed-rate mortgages expected to require 13.2 percent of consumers’ median income. This is well below the 28 percent mortgage qualification threshold established by Realtor.com. Detroit’s forecasted rent-to-income ratio, on the other hand, came in at 26 percent.
Conversely, Californian markets again emerged among the most expensive in America, with the San Francisco and San Diego markets standing out as the most premium. In San Francisco, the expected mortgage-to-income ratio by year-end is a whopping 72 percent, which is more than two and a half times higher than the 28 percent threshold. San Francisco was also the most expensive city in terms of rent-to-income ratio, with this metric at 40.9 percent.
For the entire U.S., 27.6 percent of the median household income of $55,533 is forecasted to go toward mortgage payments on a median-priced home with a 30-year fixed-rate mortgages. Rents are expected to take up 29.5 percent of consumer income.
Realtor.com’s Smoke also suggested that consumers may want to consider adjustable-rate mortgages as an alternative to fixed mortgages should rates and pricing both compromise affordability. “Many first-time buyers are also challenged by having the funds for a down payment,” he added. “While there are low down payment mortgage options, a disadvantage of a low down payment is higher monthly payments.”