Monthly Mortgage Payments Have Just Hit the Highest Level on Record, Surpassing Housing Bubble Heights

If you’re in the market to buy a home or refinance an existing mortgage, you know conditions aren’t ideal at the moment.

Heck, the 30-year fixed was pricing about a percentage point lower just a month ago, so that alone is enough to drastically change the calculus.

Today, you’re looking at a 4%+ mortgage rate on your 30-year fixed, assuming you have excellent credit and a decent down payment.

On top of that, home prices aren’t any lower than they were, nor is demand. The folks who want to buy still want to buy.

But there is a silver lining – it’s all relative and both prices and interest rates are still historically reasonable.

Typical Mortgage Payment Increased 31% Year-over-Year to $1,162 in January

Last month, a buyer purchasing the typically-priced U.S. home valued at $325,667 with a 20% down payment and a 3.45% mortgage rate would pay roughly $1,162 per month.

That’s just the principal and interest portion, not including other expensive items like homeowners insurance and property taxes, collectively PITI.

Those additional costs can make homeownership a lot more expensive in reality.

Anyway, that’s the highest P&I monthly payment on record, per Zillow research, surpassing the $1,118 per month set during the housing peak in July 2006.

Back then, home prices were super frothy and mortgage rates were closer to 7%, per Freddie Mac. In fact, the 30-year fixed averaged 6.76%!

But forget about the aughts for a moment.

Just last year, the typical home valued at a much lower $271,650 with a 20% down payment and a conforming, 30-year fixed-rate mortgage set at 2.75% would have resulted in a monthly P&I of just $885 per month.

So once we factor in both home value growth and higher mortgage interest rates, monthly mortgage payments are up 31%!

It’s Even Worse in Hot Housing Markets Nationwide

While a 31% jump in payment is nothing to sneeze at, it’s actually probably a lot worse in reality.

For one, most home buyers do not put down 20% when purchasing a property.

Per the 2021 Zillow Consumer Housing Trends Report, 59% of buyers who purchased a home with a mortgage last year put down less than 20%.

It’s unclear what they put down, but there are mortgages that require just 3% down backed by Fannie and Freddie, and 3.5% down from the FHA.

There are also many zero down mortgage options out there too, such as VA loans, USDA loans, and proprietary offerings.

Down payments aside, there’s also the issue of red-hot home price appreciation in certain desirable metros.

For example, the year-over-year change in typical monthly mortgage payments was a whopping 59.6% in Austin, Texas.

In other words, had you bought a home a year ago, you’d be laughing all the way to the bank.

The same is true in Raleigh (+44.1%) and Phoenix (+43.1%), both of which have been popular destinations for out-of-staters.

On the flipside, home price growth was slowest in the metros of Baltimore (+22.2%), Washington, D.C. (+22.2%) and Milwaukee (+22.8%), which is still pretty darn high.

Why It Might Not Be So Bad If You Can Find a Home to Buy

Now a 31%+ jump in monthly mortgage payments clearly isn’t welcome news for prospective home buyers, but let’s keep it in perspective.

It’s the year 2022 and the average monthly P&I payment is just $44 more than it was in 2006, which is about 16 years ago.

Despite being negligible, today’s dollars just aren’t worth as much as they were then thanks to inflation, which has ramped up big time lately.

On a real basis, instead of nominal, monthly P&I would need to rise to about $1,600 to match those frothy, housing bubble levels of yesteryear.

That gives us quite a bit of room before home prices combined with interest rates are back to housing bubble highs.

It’s not to say that we should use 2006 as a barometer for housing market health, since it was a horrible time to buy a home.

But the margin remains quite wide, and you’re still getting a 4% 30-year fixed, which is historically excellent.

At the end of the day, if you can find a home you really like and secure a 4% mortgage rate, there are worse things.

Especially if the 30-year fixed climbs to 5% next year and home prices are also that much higher.

The real problem continues to be inventory, which is preventing many would-be buyers from getting in the door at any price.