Priced Out: Where Higher Rates Could Hurt Home Buyers Most

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

Photograph by Gallery Stock

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Zillow’s calculation of the percentage of monthly income going to pay the mortgage is based on a combination of 2012 median annual income figures from the Census Bureau and extrapolations of Bureau of Labor Statistics wage growth data into 2013's third quarter, as well as its own calculation of median home values. In calculating the affordability percentages for homeowners in the third quarter of 2013 Zillow used the then-current 4.46 percent mortgage rate, taken from the Freddie Mac Primary Mortgage Market survey. Mortgage payment calculations assume a 20 percent down payment, and historic averages for the percentage of monthly income paid to cover the mortgage bill are based on data from 1985 to 1999, before the real estate boom. Zillow's affordability calculations at a mortgage rate of 5 percent and 6 percent take into account its median home value forecasts (more detail here) for the third quarter of 2014. Calculations include no forecast gains in median income.