• Buying a home in America is the most affordable it’s been since 1980, according to new data from Trulia.
  • Mortgage rates have dropped, which increases long-term affordability for homeowners.
  • Only three of the 100 largest metros — Denver, Miami, and Portland — have become less affordable since 1990.
  • Rising mortgage rates and Trump’s new tax law, which reduced the mortgage interest deduction cap, could threaten affordability.

The US housing market is favorable for sellers and tough for buyers right now. Prices are steep thanks to strong demand and low supply, particularly for starter homes.

But all things considered, buying a home is more affordable for millennials now than it was for their parents, according to new data from Trulia’s housing economics research team.

“Thanks to low mortgage rates, buying a home is actually more affordable now than in the past 40 years,” Alexandra Lee, a housing data analyst at Trulia, told Business Insider.

Mortgage interest rates hit 16.6% in 1981 in response to massive inflation in the US. In 2016, interest rates fell to about 3.5%, and they’re hovering around 4.5% right now.

President Trump signed the Republican tax bill into law in December 2017. Now, new homeowners who deduct mortgage interest are limited to deducting the interest they pay on $750,000 worth of debt, down from $1 million.

The mortgage interest deduction has been a huge incentive to homeownership up to now, but the new limits could deter first-timers. More and more millennials are renting longer and are able to save up a bigger pot of money for a larger down payment, Zillow’s CEO Spencer Rascoff said on an episode of Business Insider’s podcast, “Success! How I Did It.” Ultimately, he said, millennials are skipping starter homes and going straight to the $1 million range.

Mortgage rates are crucial for affordability

Mortgage interest rates are a crucial variable for homebuyers. For a fixed-rate mortgage, the interest rate remains the same for the life of the loan. When interest rates are low at the time of purchase, monthly mortgage payments remain low. This increases long-term affordability for the homeowner, regardless of home price or interest-rate swings.

In its latest report, Trulia found the “maximum affordable price” for the median-earning household in 100 metros every year since 1980, assuming a 20% down payment and a 30-year fixed mortgage at the annual average interest rate. The calculation included the cost of property taxes and insurance.

Trulia found that the typical household in 1980 could only afford about three-fourths of the median home price, compared to the median household in 2016, which could afford a home 1.5 times more than the median home price.

Twenty-two US metros crossed the threshold from unaffordable to affordable over the last four decades, according to the data. The markets that are too expensive for the average buyer now, including San Francisco, Seattle, and San Jose, California, were always too expensive.

“Of the largest 100 US metros, only Miami flipped from being affordable in 1990 to being unaffordable in 2016,” Lee said.