Monthly mortgage payments on the typical U.S. home rose 31% in the last year – the largest one-year climb in at least 22 years, as record-fast home value appreciation and rapidly rising mortgage interest rates delivered a one-two punch to would-be home buyers’ budgets.

In Metro Phoenix: 

• Monthly mortgage payments have risen 43.1% ($466) over the last year and stand at $1,549 as of January

• Typical home values were $434,184 at the end of January, up 30.7% over the past year.

The average interest rate on a 30-year, fixed-rate mortgage rose from 2.74% to 3.45% between January 2021 and January 2022, according to Freddie Mac’s Primary Mortgage Market Survey. Over the same time, the typical U.S. home grew in value by 19.9%, according to the Zillow Home Value Index,  thanks to strong home purchase demand running up against very low inventory of home listings.

READ ALSO: 5 most expensive cities in Arizona real estate market

In January 2021, a buyer purchasing the typical U.S. home (then worth $271,650) with a 20% down payment and a conforming, 30-year, fixed-rate mortgage at then-prevailing rates, would have expected to pay $885/month (principal & interest only). By this January, after factoring in home value growth (the typical U.S. home was worth $325,667 in January) and higher mortgage interest rates, that same payment had risen 31% – to $1,162/month. That monthly mortgage payment is the highest on record, surpassing the previous peak set in July 2006 ($1,118, when mortgage rates were a whopping 6.76%). The previous record-high year-over-year growth in mortgage payments was in December 2013, when home prices had begun to rebound from their housing crash lows and mortgage rates hovered at 4.46%.

This calculation is also admittedly conservative, and monthly payments are likely much higher for buyers looking to buy the typical U.S. home, because the 20% down payment is not, itself, typical – a majority (59%) of buyers who purchased with a mortgage last year put down less than 20%, according to the 2021 Zillow Consumer Housing Trends Report. Borrowers who put less down naturally have a higher outstanding principal balance and will incur more interest, all else being equal, and therefore their payments have likely climbed even faster in the last year.

Annual growth in monthly mortgage payments is also much higher in some large U.S. markets in which local home value growth has been particularly strong. Among the nation’s 50 largest metro markets, the year-over-year change in typical monthly mortgage payments was highest in January in Austin (+59.6%), Raleigh (44.1%) and Phoenix (43.1%). Growth was slowest in Baltimore (22.2%), Washington, D.C. (22.2%) and Milwaukee (22.8%).

What’s next?

Predicting interest rates is notoriously difficult. On a weekly basis, mortgage rates have already climbed from the January average used in these calculations, 3.45%, to 3.92% as of mid-February. If rates hold at that level in the fourth week of February, the monthly average will climb to 3.77%. We expect the Zillow Home Value Index to climb 1.7% between January and February, to $331,175. Together, that would imply a new typical mortgage payment of $1,230, or a whopping 36% higher than the typical payment of $905 recorded in February 2021.

Higher borrowing costs are likely to push buyers to seek out lower-priced homes, whether that means smaller homes or condos, more affordable neighborhoods, or even pulling up stakes and moving to a more affordable region. For others, it might mean delaying a home purchase altogether, until a larger down payment can be saved up or in the hopes of falling rates.

What’s unclear is what this all means for home price appreciation. With so few homes on the market, sellers still may expect multiple offers on their listings, even if a substantial share of buyers press “pause” on their home search for now. Further, the inventory drought may get deeper, if existing homeowners who bought or refinanced at rates below 3% decide to hunker down for now, rather than pay more in interest to trade up in today’s conditions.