As payments skyrocket, renters are finding a home purchase out of reach
While Congress continues its work on two parallel housing bills, which will hopefully tackle the affordability crisis in homebuying, other factors are piling up, making that challenge more difficult.
The mortgage industry is hopeful that the House and Senate will find common ground and pass housing reforms to make housing more affordable. But there are factors affecting day-to-day household budgets that these bills can’t fix, and those are starting to become a problem.
Brokers have discussed the challenges with soaring property taxes and home insurance nationwide. Some states are even considering eliminating property taxes to help ease homeowners' burdens. However, it is a record level of consumer debt that is also weighing on potential buyers, including a surge in one specific type of debt.
Craig Riddell (pictured top), EVP at LoanLogics, cites the surge in average car payments as a potential warning sign that current homeowners and future homebuyers might be digging a hole of unaffordability. He said he had a recent conversation in which someone mentioned a significant increase in car payments.
“And I started poking around a little bit after he said this, and it appears that over the last four or five years, the average car payment has gone up about 26%,” Riddell told Mortgage Professional America. “It was like $550 a month for new cars, and now it's $748.”
Higher payments for longer
It’s not just the higher payments that are stretching the budgets of current and potential homeowners. These higher payments are also extended over longer and longer loan terms.
“The other piece was that the amortization periods are stretching,” Riddell said. “So what used to be a three- to four-year car loan is now six to seven years, in many cases, with very little money down. This leads to something called gap coverage, which I had never been familiar with.”
Because household budgets leave less room to save for down payments on homes and cars, it adds yet another layer of stress for consumers. In the automobile world, it leads to gap insurance coverage to help cover the replacement cost of a totaled car that isn’t worth what is owed on it.
“As my kids started to buy cars and didn't have a lot to put down, I would listen to the sales process and make suggestions,” he said. “The car's depreciating faster than the amortization.”
Potential first-time buyers who now face a larger-than-anticipated car payment for a longer period are also dealing with home rental prices that have soared in major markets. This also makes it harder for them to save for a down payment on their new home.
“That first-time homebuyer is finding in the popular urban areas, the rentals, in many cases, so much of the real estate is owned by these corporate buyers,” Riddell said. “Over the last 10 years, they control the market spread. So rentals in Denver, Chicago, New York, and LA go up. And now you're paying for a parking spot, and a $600 to $900 car payment that's going to be out there for six to seven years.”
A heavier burden
As Riddell continued to have informal conversations with lenders and other clients, he kept hearing the same stories regarding the impact of increasing car payment burdens on consumers. He said the burden could eventually weigh on first-time homebuyers and make it harder for them to obtain a mortgage.
“Those payments, the manner in which they were rising, were outpacing general income increases in most households,” he said. “You couple that with interest rates rising for homes themselves, and the amortization period on cars going to 84 months, and now you are carrying this burden. Even if you might qualify for the house, it feels like a heavier burden.”
Riddell also noted that many first-time homebuyers are newlyweds starting their lives together. When they decide to get that first house, it might coincide with someone relocating and taking a new job that pays less. But with so many people holding car loans that exceed the car's value, it’s not as simple as selling a car to fix a household budget.
A report released by Edmunds in January found that 29.3% of trade-ins for new-vehicle purchases in Q4 2025 were underwater, the highest percentage since Q1 2021. The average amount that the trade-in was underwater was $7,214, the highest ever recorded by Edmunds.
These financial challenges are leaving potential homebuyers unsure whether they want to purchase a home, Riddell said.
“That feeling of buying your first home, and that security or accomplishment, it comes with these other thoughts,” he said. “They're feeling, ‘I'm not ready to buy because I have this (car) obligation, and I'm going to have this obligation for several more years.’ There is a part of the marketplace that is psychologically blocked.”
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