A lot changed for interest rates in America between 2018 and 2023. In May 2018, average 30-year mortgages were at 4.55%, which was a bit high at the time, but nothing compared to how much interest rates would climb in 2022 and 2023. At their highest point, average 30-year mortgage rates were above 7% and have only recently started to come down into the 6% range.
As a result of these sky-high interest rates, monthly mortgage payments became increasingly more expensive. But with income growth not keeping pace with the increases in monthly mortgage payments, housing demand has cooled off.
This raises the question: How much more did mortgage payment growth outpace income growth in the last five years?
To find out, Zoocasa analyzed median single-family home prices from May 2018 to May 2023 in 50 U.S. cities and calculated what the average mortgage payment would be in each using the Nerd Wallet Mortgage Payment Calculator. The calculations were done assuming a 20% down payment and using the 30-year fixed rate from the first week of May of each year analyzed, according to Freddie Mac. We then compared this to the median annual income according to the U.S. Bureau of Labor Statistics in each city to see how the rates of growth differ from May 2018 to May 2023.
The average 30-year fixed rate in the first week of May 2018 was 4.55% and the average 30-year fixed rate in the first week of May 2023 was 6.39%. Median home prices were sourced from each city’s real estate board.
Most Markets Have Seen Mortgage Payments Increase By More than 50% in 5 Years
Median annual income and average monthly mortgage payments increased in every city analyzed from May 2018 to May 2023. However, in every city, the rate of increase for mortgage payments far exceeded that of income. In 47 out of 50 markets, the average monthly mortgage payment increased by more than 50%, and in 10 markets it increased by over 100%. In most markets, this amounts to an increase of more than $500 per month.
For instance, in 2013, the average monthly mortgage payment in Tucson was $883, and by 2023, it rose to $2,000 - an increase of 126.5% or $1,117 per month. During the same period, the annual median income in Tucson increased by just 27% from $35,430 to $44,990. In terms of income growth, Tucson is actually on the higher end of the scale. The average rate of income growth among the cities we analyzed was just 25.2%, while the average rate of increase for monthly mortgage payments was 83.4%.
Miami experienced the next largest percentage increase for its monthly mortgage payment, rising from $1,427 in 2018 to $3,099 in 2023. This represents a 117.2% increase and is particularly significant given the already high median home price in the city. Despite Miami being one of only four cities where the annual median income increased by at least 30% from 2018 to 2023, more is likely needed for the average homebuyer to keep up with rising borrowing costs.
Phoenix (115.2%), Portland, ME (112.2%), and Tampa (112.2%) round out the top five markets experiencing the largest percentage increases in average monthly mortgage payments. Among these, Tampa saw the highest increase in annual income at 29.3%, yet it still has the lowest annual median income at $46,420. This may make it more challenging for prospective homebuyers in Tampa to break into the market compared to those in higher-earning cities like Baltimore, New Haven, or Minneapolis, which all have annual incomes above $50,000 and home prices below those in Tampa.
The Financial Squeeze: Income Growth Falls Short of Housing Costs
In some of the country’s priciest real estate markets like Denver, Los Angeles, and Seattle, monthly mortgage payments have increased by over $1,000 since 2018. This means homebuyers would need at least an extra $12,000 annually to cover the additional mortgage expenses. However, the median annual income increase was below that in many cities.
In Los Angeles, the annual median income increased by just $9,520 from 2018 to 2023, while the average monthly mortgage payment increased by $1,663 or $19,956 annually. Similarly, in Raleigh, the annual median income increased by $9,340 while the average monthly mortgage payment increased by $1,268. Without sufficient income growth to match rising home costs, prospective homebuyers may need to settle for more affordable entry points into the market like condo apartments or townhouses.
Largest U.S. Cities See Milder Mortgage Payment Increases
While many cities experienced sharp rises in monthly mortgage payments, some of the country’s largest urban centers experienced more muted increases. For example, in Boston, the average monthly mortgage payment increased by only 27.5%, rising from $2,567 in 2018 to $3,274 in 2023. However, with median single-family home prices above $600,000, Boston is not an easy market to enter, especially for those earning a median income of $63,060.
Washington, D.C. also saw a moderate increase of 35.8% in monthly mortgage payments, while the annual median income rose by 19.1%. With one of the highest annual median incomes in 2023, at $65,110, median-income earners in D.C. may be better equipped to handle the rise in mortgage payments. However, with the median single-family home price in May 2023 at $659,900, it’s clear that although larger cities experienced softer mortgage payment increases, this doesn’t necessarily translate into affordability.
Do you have questions about entering one of these markets this year? Give us a call! Our experienced real estate agents will help you navigate the market to find the right home for you.
