Priced Out: Where Higher Rates Could Hurt Home Buyers Most

By Suzanne Woolley - 2014-01-09T16:47:41Z

Photograph by Justin Sullivan/Getty Images

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Pain at 5%: Stockton, Calif.

Monthly income devoted to mortgage bill:

• historic average: 24.7%

• at 5% interest rate: 26.3%

Yes, it's more than a little bizarre to have a bankrupt city top a list of places where buyers could get priced out if mortgage rates keep rising. But a glut of homeowners, whose mortgages outweigh the value of their homes, has limited the supply of homes here. That's led to dramatic price gains -- but not so dramatic that it flips the balance for those homeowners. In 2013’s third quarter, 18.7 percent of monthly income went to pay the mortgage, a drop from the average of 24.7 percent from 1985 to 1999. If mortgages hit 5 percent, that jumps to 26.3; at 6 percent, to 29.4 percent. Zillow projects that the median price of a home in Stockton will rise 22.8 percent by September, to $255,861; the median income is $50,128.