Mortgage payments are more affordable now—except in LA

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Los Angeles homeowners are burdened with some of the nation’s least affordable mortgage payments, according to a new report from Zillow.

With housing prices in the area shattering all-time highs, it may not come as a surprise that monthly payments for buyers are on the rise as well. But due in part to historically low interest rates, mortgages are actually more affordable now in most parts of the country than they were between 1985 and 2000.

Zillow finds that a typical U.S. homeowner would have spent about 21.1 percent of their income on mortgage payments between 1985 and 2000—compared to 34.5 percent in the Los Angeles metro area. Today, that share of income is down to 17.1 percent nationwide, but up to 44.9 percent in LA.

Los Angeles is one of just nine of the 35 largest U.S. housing markets where mortgage payments on a median priced home take up a larger share of of the median income now than they did in that 15-year time period, which Zillow uses as a historic average.

More simply put: House payments in the Los Angeles area have gotten harder to afford in the last 18 years, while nationally, they’ve become more affordable.

Interest rates are climbing, and mortgage payments could quickly become far more expensive for U.S. buyers. In the LA area, where those costs are already high, that could make homeownership an even bigger challenge for many residents.

According to Zillow’s projections, if interest rates hit 5 percent (as some forecasters expect), mortgage payments will amount to roughly half of the median income in the LA area—well above the 30 percent threshold often used as a measure of housing affordability.

The true affordability burden for most buyers may be even higher. Zillow’s income share statistic assumes a 20 percent downpayment—more than $120,000, based on median home prices in LA County.

Since many buyers don’t have that kind of cash on hand, they may put down far less than 20 percent of a home’s purchase price up front. While that allows home shoppers to save money in the short term, it means they’ll end up with much higher monthly payments.

Assuming a 4.5 percent mortgage interest rate, the monthly payment for a median-priced home in LA would be around $3,068 with a 20 percent down payment, according to Zillow’s mortgage calculator. Cut that down payment in half, and the monthly cost of the mortgage goes up to $3,645.

At some point, the combination of escalating home prices and soaring interest rates may drive buyers away from the market, but for now, demand is high. According to a recent Redfin survey, only 6 percent of U.S. home shoppers would give up on plans to buy should interest rates hit 5 percent.

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