Rising home prices are driving another housing-industry increase: the size of home loans, which earlier this month reached their highest levels since the Mortgage Bankers Association began tracking them in 1990, according to Realtor.com.
Along with higher prices, the increase reflects a trend toward smaller down payments. No longer is 20% the norm, as the median down payment last year was 10% overall and 6% for first-time buyers.
Today’s median mortgages are more than five times median annual income, compared to 3.3 times median income in 1990, according to the MBA survey.
The combination of mortgage-rate increases and continued economic recovery from the recession may take the industry into unfamiliar territory.
Already, mortgage payments are eating up a larger chunk of income than they were previously, according to Zillow, though it’s been noted that income growth isn’t keeping pace with home-price gains. Monthly payments required 15.8% of median household income in the fourth quarter of 2016, up slightly from 14.7% a year earlier.
Rising mortgage rates could stress affordability, with an increase from 4% to 4.25% raising monthly mortgage payments for a median-priced U.S. home by $23.
Some state and local governments are stepping up with programs to encourage homeownership.
Wells Fargo recently announced a $2.55 million investment to provide down payment matching grants for roughly 225 borrowers in Alabama. In Tennessee, the state's Housing Development Agency and the U.S. Treasury Department are offering down payment assistance in areas with high unemployment and foreclosures. And Santa Ana, CA, currently one of the country’s priciest housing markets, is offering first-time buyers interest-free down payment assistance loans.
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