SEATTLE (12/11/14)--The affordability gap between renting and owning is growing with rents considered unaffordable in all 35 of the largest U.S. metropolitan areas, according to Zillow's third quarter affordability index.
Relative to historic norms, homes remain very affordable. The median buyer--assuming a 20% down payment and a 30-year fixed-rate mortgages--purchasing the median-priced home would spend only 15% of his or her income on a mortgage payments. From 1985 to 1999, roughly 22% of homeowners' income was devoted to their mortgages.
For renters, it's a different story. Renters making the national median income and living in a median-priced apartment should expect to pay 30% of their income toward rent, compared with roughly 25% historically.
Homeownership remains accessible for first-time home buyers who put down even a small down payment. They could expect to pay as little as 17.4% of their income toward their mortgage, according to Zillow numbers.
"But what keeps me up at night is the fact that it still remains so difficult for so many potential buyers to make those particular stars align, largely because renting is so unaffordable these days," said Stan Humphries, Zillow chief economist (Housingwire Dec. 9). "It's very difficult to come up with a down payment when so much of your monthly paycheck--especially on an entry-level salary--is going to your landlord instead of into your savings."
Miami has the biggest difference between the amount of income devoted to renting (44.5%) vs. owning (19.9%), and its median income sits at $47, 896. San Jose, Calif., is the only metropolitan area where median mortgage payments account for 38.2% of income compared with 37.9% for renters.