Sacramento mortgage payments are rising fast. Here’s how much they’re increasing

Typical monthly housing costs for home buyers in the Sacramento region have risen more than 50% in the last year, thanks to increasing prices and skyrocketing mortgage rates.

A year ago, a typical single-family home in the Sacramento region was worth about $522,000, according to Zillow.com. At that time, the average interest rate for a 30-year fixed mortgage nationwide was 3.02%. Assuming a 10% down payment, home buyers purchasing a home at that price would face monthly payments of about $2,800, including property taxes, private mortgage insurance and homeowner’s insurance.

Lately, the value of a typical single-family home has risen to about $632,000. Even more significantly, the average mortgage rate had risen to about 5.7%. That translates to monthly payments of about $4,300.

The change represents a huge shift in housing affordability. Financial advisers often say not to spend more than one-third of income on housing costs. At last year’s prices, that meant a household earning about $100,000 a year could afford the region’s typical home.

Today, it means a household would need to earn more than $150,000 a year to afford a typical home. Only about 20% of Sacramento households earn more than $150,000, according to the latest census figures.

Sacramento’s most expensive communities

The most expensive community in the region is Granite Bay, where the typical single-family home costs about $1.2 million. That translates to a housing payment of about $8,300 a month, up from $5,300 a month a year ago. To comfortably afford a housing payment that large, a household would need to make around $300,000 per year.

The typically-priced home in El Dorado Hills, Davis and Loomis would cost between $6,000 and $7,000 a month. A typically-priced home in Folsom and Rocklin would cost between $5,000 and $6,000 a month.

While those prices may seem high, they would be a bargain in the Bay Area. In the San Francisco metro, the typically-priced single family home is worth about $1.6 million, putting it outside the comfortable reach of households earning less than $400,000 a year.

Sacramento’s mid-range communities

A year ago, buying a typically-priced home in Sacramento’s mid-range communities would result in a monthly housing payment between $2,500 and $3,500.

Today, a monthly housing payment in those same communities will run between $4,000 and $5,000.

Places like Elk Grove and Roseville that have drawn middle-class households for much of the last decade are quickly climbing out of reach. To comfortably afford a home in one of those two cities, a household would need to make about $175,000 a year.

Sacramento’s most affordable communities

Sacramento’s most affordable communities are too expensive for most households in the region.

The typically-priced single-family home in the Florin community of south Sacramento costs around $450,000, a cheaper price than any other large community in the region. That translates to monthly housing payments of around $3,100.

A household would need to earn about $110,000 a year to comfortably afford that home. The median household income in the Sacramento region is about $76,000. In the city, the median is about $66,000, according to the census.

Methodology

Monthly housing payments are influenced by a complex mix of factors, including interest rates, buyer credit scores, insurance premiums and the size of a buyer’s down payment. Any analysis that seeks to pin down a typical housing payment is based on assumptions. Here are the assumptions used by The Bee:

Home prices: The Bee used Zillow’s Home Value Index for single-family homes for May 2021 and May 2022. This is close to a median value — but a little more complicated. Zillow suggests describing it as a “typical home value.”

Mortgage Rates: The Bee used average national mortgage rates for June 24, 2021 and June 30, 2022, as listed by Freddie Mac.

Down payments: According to the National Association of Realtors, the average down payment is equivalent to about 7% of the home’s price for first-time buyers and 17% of the home’s price for repeat buyers. The Bee assumes a 10% down payment. A 20% down payment would lower monthly housing costs by several hundred dollars, due to a lower principal and the elimination of private mortgage insurance. For instance, in the Sacramento region, monthly payments for a typically-priced home with a 20% down payment would be about $3,600, compared to a $4,300 payment with a 10% down payment.

Private mortgage insurance: Homes bought with down payments below 20% of home value usually require private mortgage insurance for several years. Freddie Mac says annual private mortgage insurance typically runs between 0.36% and 0.84% of the loan amount. The Bee assumes annual PMI payments of 0.45% of the home’s value.

Homeowner’s insurance: According to Bankrate.com, annual homeowner’s insurance payments nationwide average about 0.58% of dwelling coverage. However, a home’s value is the worth of its dwellings and land. The Bee assumed that land comprises about 30% of a home’s worth and set annual insurance costs to 0.38% of the home’s value.

This story was originally published July 13, 2022 at 5:00 AM.