A household earning the median income would need to spend 34.3 percent of that income on the monthly payment for a typical U.S. home, according to Zillow’s September housing market report, published October 6. The share is up from 33.7 percent a year earlier and 33.9 percent in August, even though the typical home value rose only 1 percent over the year. Mortgage rates are doing the damage. They ended September at 7.28 percent, the highest level since November 2023, so the monthly bill is climbing much faster than the price tag.
What the 34.3 percent figure assumes
Zillow’s measure is a model, not a survey of what households actually pay. The number is built from a typically valued home and a 20 percent down payment, and it includes estimates for taxes, maintenance and insurance on top of the loan payment. Households that bought years ago at lower rates, have paid off a mortgage or put down more than 20 percent would spend a different share. The figure describes the cost of buying a typical home today, not the budget of the average owner.
Zillow also reports the loan payment on its own. The report says the monthly mortgage payment on a typical U.S. home is $1,922, assuming a 20 percent down payment and leaving out taxes and insurance. That payment is 6.7 percent higher than a year ago. The typical U.S. home value is $366,913. Mischa Fisher, who wrote the report for Zillow Research, attributes the worsening affordability to higher mortgage rates rather than to price gains.
Anyone weighing a purchase now faces the arithmetic the report describes. At a rate near 7.28 percent, a typical home takes more than a third of a median household’s income to carry. A buyer who brings cash from an earlier home sale borrows less, but every dollar still borrowed costs that high rate. Because the measure assumes 20 percent down, a smaller down payment would push the share higher and a larger one would pull it lower.
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Rates, not home prices, are driving the payment
Home values rose 1 percent from a year earlier, and a gain that small adds little to a monthly payment. The 6.7 percent jump in the payment is mostly the cost of borrowing. Freddie Mac’s weekly survey, the benchmark lenders and economists follow, put the 30-year fixed rate at 7.28 percent as of October 1, up from 7.03 percent the week before and from 6.34 percent a year earlier. That is a rise of 94 basis points, or 0.94 percentage points, in twelve months.
The Federal Reserve added to the climate that month. On September 16 the central bank raised the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in a unanimous 12-0 vote. The Fed does not set mortgage rates. Thirty-year loans follow longer-term borrowing costs more closely than the overnight rate the Fed controls. A hike in the same month that mortgage rates reached their highest reading since late 2023 shows how little relief borrowers can expect from the direction of policy.
The affordability share moved only 0.6 percentage points over the year, from 33.7 to 34.3 percent, which sounds small. On a measure that already consumes about a third of income, each point is a large amount of money for a household. A move of 0.6 points means the typical buyer’s monthly budget absorbed a meaningfully larger bite of the same paycheck, with no help from falling prices to offset it.
Sales are slowing as payments rise
Buyers are already responding. Zillow says newly pending sales, a forward-looking indicator of future closed sales, fell 8.5 percent as mortgage rates reached their highest level since November 2023. Existing home sales fell 2.5 percent from a year earlier, with 319,346 homes sold in September. Pending sales fall first because they count contracts signed, so the drop points to fewer closings in the months ahead.
Supply is moving the other way. Total for-sale inventory was 2.5 percent higher than a year ago, so more homes are on the market while fewer buyers are signing contracts. That combination usually gives buyers more bargaining room on price, and it matches the flat home values in the report. Sellers who hold out for last year’s prices face a buyer pool squeezed by payments rather than by prices.
Zillow measures the rent side too. A median-income household would need to spend 26.3 percent of its income on the typical rent in September, down from 26.4 percent a year earlier and flat from August. The gap between the two shares has widened from 7.3 percentage points a year ago to 8.0 points now, because buying has become costlier while renting has not.
Pricing a real mortgage before committing
The 34.3 percent figure is a national average built on assumptions. An actual payment depends on the lender’s quote, and the document that shows it is the Loan Estimate, a standard form that a lender provides for a mortgage a borrower has requested. It lists the monthly principal and interest payment and an “Estimated Total Monthly Payment” that includes taxes, insurance and escrow, plus closing costs and the cash needed to close.
The Consumer Financial Protection Bureau says the interest rate is important but is not the only cost of a mortgage, since fees, points, mortgage insurance and closing costs all add up. Its guidance is to compare Loan Estimates from more than one lender. The form includes the annual percentage rate and a Total Interest Percentage, which make offers with different fee structures easier to line up against each other.
Zillow’s September numbers put the pressure in the monthly payment, not in the price of the home. At 34.3 percent, the median-income share sits above the 33.7 percent of a year ago while prices are nearly flat. Whether the share keeps rising depends on mortgage rates, which Freddie Mac updates every week and Zillow measures each month.
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This article was produced with AI assistance and reviewed by The Money Overview’s editorial team.
