A recent Zillow report revealed that even if mortgage rates fall by 4%, some housing markets will remain out of reach for families earning the median income. Based on the prevailing interest rate of 6.11% for a 30-year fixed-rate loan, the study concluded that a home is considered affordable if mortgage payments constitute less than 30% of the median household income. This assumes a 20% down payment on the house.
Cities such as New York, Los Angeles, and Miami have been highlighted for their sky-high home values. Even with a 0% mortgage rate, homes in these cities remain unaffordable for most. The average home value in New York is above $800,000, and almost hitting the $1 million mark in Los Angeles.
Boston and Seattle are also costly housing markets, requiring mortgage rates to dip below 1% to make homes affordable. Housing in Dallas, New Orleans, and Nashville will be considered affordable if mortgage rates drop by more than two percentage points.
However, some regions of the U.S. have lower home values, making homeownership possible even if the mortgage rates rise above 6.7%, according to Zillow. For example, the average home value in Pittsburgh, Pennsylvania, is approximately $231,518, significantly lower than the national average of $359,241. Homeownership in this city would be viable for most individuals even if mortgage rates soared to 9%.
Similarly, in Birmingham, Alabama, and Detroit, the average home values are $132,725 and $76,340 respectively, making home ownership achievable with mortgage rates of 7.62% and 7.02% respectively. Buffalo, Indianapolis, and St. Louis also boast home prices low enough to remain affordable even if rates climb beyond 7%.