High mortgage rates and high home prices mean that first-time buyers are spending beyond the recommended percentage of their income on housing.
- The National Association of Realtors (NAR) reported that homeowners are spending 37.8% of their income on mortgage payments rather than the recommended 25% of their income.
- High mortgage rates are driving up the monthly payments for buyers. A single-family home with a 20% down payment can now expect a $1,840 monthly payment.
- In response to high prices and high rates, buying activity has slowed in recent months.
Why it’s news
As prices on most goods continue to rise, home buyers could face difficulties with higher home payments.
The NAR recommends that the monthly mortgage payment, including principal and interest, exceed no more than 25% of the total household income. Anything above that is considered unaffordable for the buyer.
The NAR also reported that the number of first-time home buyers is shrinking and the age of a first-time buyer is growing.
Only 26% of buyers this year were first-time buyers. The average age reached the highest recorded by the NAR—36 years old.
Backing up a bit
Home buying trends are beginning to shift as fewer buyers are able to afford the high mortgage rates and high home prices. One notable change has been a buyer’s willingness to move greater distances.
Typically, Americans only move about 15 miles when looking for a new home, but that trend has been changing.
Americans, on average, are now moving around 50 miles away when purchasing a new home and even farther if they are a repeat buyer.
The pandemic and remote work opportunities prompted many home buyers to move closer to family or to lower cost-of-living areas.
First-time buyers were more likely to stay closer to home, but repeat buyers were willing to move greater distances. If first-time buyers are not factored into the data, the median distance moved is around 90 miles.