Where will higher mortgage rates raise monthly mortgage payments most?
These three charts from the real estate site Zillow.com depict how higher mortgage rates will affect monthly mortgage payments in different markets throughout the United States.
The charts are based on the percentage of income homeowners spend on their monthly payments, with a pre-housing bubble baseline of 20% of median household income.
The first chart shows how much more expensive than historical norms monthly payments will become in six of the priciest metropolitan areas when mortgage rates climb to 5%, assuming homes appreciate in line with Zillow projections.
Monthly payments in the San Jose metro area will increase the most (22% over the baseline) followed by Los Angeles (19%), San Diego (14%), San Francisco (11%), Portland, OR (7%) and Denver (1%).
At 6% mortgage rates (second chart), monthly payments in these areas, of course, will be even higher than the historical norm.
And homes in five more major markets will become more expensive than the historical norm: Riverside, CA (11%), Miami (7%), Seattle (5%), Sacramento (4%) and Washington, DC (2%).
At 7.1%, monthly payments in seven additional metro areas will exceed historical norms: Phoenix (13%), Boston (10%), Philadelphia (9%), New York (7%), Baltimore (6%), Pittsburgh (5%) and Charlotte (2%).
But even as mortgage rates rise, Zillow chief economist Stan Humphries points out, 5% or 6% mortgage rates should be considered "bargains" when viewed in their historical context: Over the past 42 years, the average 30-year, fixed-rate mortgage has been about 8.5%.
With higher mortgage rates, Humphries writes in his blog, "We're likely to see price volatility, as consumers are forced to either spend more of their incomes to buy ever-more-expensive homes; or home value appreciation will stagnate or fall while waiting for incomes to catch up."
But the higher mortgage rates have an upside: They're likely to hold prices down in some areas, which could help prevent another housing bubble (though average prices still remain far below housing bubble peaks).
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