SEATTLE—Paying on a mortgage is still affordable, while rent takes up more income than ever in most major metro areas, according to a Zillow analysis of US rental and mortgage affordabilityi in the second quarter of 2015.
Rental affordability worsened over the last year, while mortgage affordability stayed essentially the same. Renters in the US can expect to put 30.2% of their monthly income toward rent – the highest percentage ever. Before the real estate bubble and bust, US renters could expect to spend about 24.4% of their incomes on rent.
Buyers should expect to pay 15.1% of their income towards mortgage payments, which is still less than what they spent historically. From 1985 through 2000, homeowners spent about 21.3% of their monthly income on mortgage payments.
"Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own healthcare," said Zillow chief economist Dr. Svenja Gudell. "There are good reasons to rent temporarily – when you move to a new city, for example – but from an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it's a good time to buy a home and start putting your money toward a mortgage."
In Denver and in four California metros, both renters and buyers can expect to pay more of their income towards either rent or mortgage payments than in pre-bubble years. In hot San Jose, renters and buyers should each plan to put about 42% of their incomes towards housing.
Mortgage payments will continue to be affordable even if mortgage rates rise as expected. If rates reach six percent next year, home buyers can still expect to spend 30% or less of their income on mortgage payments in 265 out of 290 (91.4%) of the metros Zillow analyzed, and mortgage payments will be considered more affordable than in pre-bubble years in 72.1% of metros.
Rents, on the other hand, are already unaffordable compared to historic norms in 77% of metros, and with relatively stagnant wage growth, this likely won't improve as rents keep climbing.
Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by chief economist Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, and headquartered in Seattle.
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David Phillips
David Phillips is a Chicago-based freelance writer and consultant with more than 20 years experience in business and community news. He also has extensive reporting experience in the food manufacturing industry for national trade publications.
