Home Buyers' Monthly Payments Are Up 29% From Last Year. Is There an End in Sight?

It's gotten really, really expensive to own a home.

For months on end, many would-be buyers found themselves priced out of the housing market as home values soared. These days, home prices are starting to moderate, and home price gains have been slowing. But that doesn't mean buying a home has suddenly become an affordable prospect.

In fact, a recent tweet by Redfin highlighted a pretty shocking statistic: The typical home buyer's monthly payment recently hit an all-time high of $2,563. That's an increase of 29% from a year ago. And it explains why for so many people, homeownership still isn't within reach.

Expensive mortgage rates are negating other savings

For months on end, home prices seemed to be going nowhere but up. In recent months, they've begun to cool. But that's not doing enough to solve the affordability crisis so many buyers are grappling with.

While home prices may not be as high these days, mortgage rates have been stuck in the 6% range for months. And because borrowing rates for mortgages are so much higher than they were a year ago, ultimately, buyers aren't gaining anything with regard to affordability. Rather, they remain stuck in a holding pattern.

Can you afford to buy a home today?

In the context of housing, the word "affordable" can mean different things to different people. But as a general rule, it's a good idea to keep your monthly housing costs to 30% of your take-home pay or less. If you stick to this limit, you may be less likely to fall behind on your mortgage payments or other bills. You might also be less likely to struggle financially or have to make extreme sacrifices to keep up with your housing payments.

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Now to be clear, when we talk about keeping housing costs to 30% of pay or less, that doesn't just mean a mortgage payment. Rather, it means all predictable monthly housing expenses, from HOA fees (if applicable) to homeowners insurance premiums to property taxes.

You may be okay to go beyond that 30% limit if there's another large expense you're able to keep way down -- for example, if you spend next to nothing on transportation because you live in a walkable city, don't have a car, and rarely take the bus. But otherwise, it's important to limit what you spend on housing so you don't wind up falling behind on expenses and regretting your decision after the fact.

Will homes become more affordable?

In time, they're apt to. Not only have home price gains been slipping, but at some point, mortgage rates are likely to drop below the 6% mark.

The problem is, we don't know when that will happen. And even if home prices continue to trend lower, if mortgage rates remain stuck at their current level, or in that vicinity, buyers will, unfortunately, remain quite limited in their options.

Furthermore, while mortgage rates will likely fall from where they're sitting today, the days of 3% mortgages may be long behind us. That's something potential home buyers will need to come to terms with.