Not Even a 0% Mortgage Rate Could Help Affordability in These Cities

The typical home is so expensive in some U.S. cities that even an interest-free mortgage wouldn’t put homeownership within reach for the average American.

A new report from real estate information firm Zillow showed that lower borrowing costs might not be enough to make the housing market affordable for the typical homebuyer.

Nationwide, mortgage rates would have to fall to 4.43% for the typical monthly payment to fall to 30% of the median household income, the level that economists define as affordable. However, in expensive coastal metro areas like New York, Los Angeles, Miami, San Francisco, San Diego, and San Jose, even a 0% mortgage rate wouldn’t bring down costs to the level a typical homebuyer could afford.

“In these metros, even just taxes, insurance, and maintenance can cost over 10% of the median income,” the report said.

Some Areas Remain Affordable Despite High Rates

In cities like Memphis, Chicago, Detroit and St. Louis, housing remains affordable even with mortgage rates currently hovering above 6.7%. And in Pittsburgh, mortgage rates could move as high as 8.9% and housing would still be affordable for the typical homebuyer, the report found.

Another way buying a home could be more affordable is if home prices declined. If interest rates don’t budge, home prices would have to fall 18% for monthly payments to become affordable. But housing prices have been moving in the opposite direction, including a 2.3% year-over-year rise in May, according to the S&P CoreLogic Case-Shiller home price index released Tuesday.

“Just like falling rates, that kind of correction in house prices won’t happen without a serious slowdown in economic growth and income growth, and a rise in the unemployment rate,” the report said.