JACKSONVILLE, Fla.–With home affordability having fallen to its lowest level in seven years, it now takes 22.2% of median income to make the monthly principal and interest payment on the median priced home, according to a new report from Black Knight Financial Services.
The measure is based borrowers using a 30-year fixed mortgage.
Black Knight noted the monthly payment on the median-priced home increased 10% in the fourth quarter of 2016 alone, due in large part to increasing rates.
The housing market has seen bigger challenges, however, During the 2005-2006 housing bubble, it took nearly 36% of the median income to afford a home, according to Black Knight.
The big difference between that time period and now? In 2005-06, most homebuyers were not using 30-year fixed loans and other "creative" loan products with no money down and extremely low teaser rates. Many of those types of loans have since been made illegal.
"That's why we always use a 30-year fixed rate for comparison. It lets you know if something in the mortgage market itself (other than rates) is causing a change in the affordability equilibrium," said Ben Graboske, executive vice president of Black Knight Data & Analytics, in a statement. "Mortgage lending led to affordability getting out of whack back in 2006 due to mortgage programs increasing buying power and thus driving up home price when in reality, without those products, the affordability ratio (between home prices, incomes and interest rates) was nowhere near sustainable.
"Nationally, homes remain more affordable than pre-bubble 'norms,' but it's clear that the market is now experiencing the most pressure — from an affordability perspective — since the housing recovery began," Graboske added.