Renting a home in the US less affordable than ever, new research suggests

Taylor Scott International News

Renting a home in the United States is less affordable than ever before with tenants paying 30% more of their income on paying for their home compared with home owners at 15%, new research shows. Mortgages remain affordable by historical standards while rent is unaffordable in three quarters of housing markets, especially high demand locations in Miami, San Francisco and San Jose, according to the latest report from real estate firm Zillow. It also shows that rental affordability worsened year on year in 28 of the 35 largest metro areas covered by the Zillow index while Denver, Los Angeles, San Francisco, San Jose and San Diego are unaffordable for both renters and buyers. Overall in the second quarter of 2015 renters paid some 30.2% of their monthly income toward rent, the highest percentage ever. Before the real estate downturn tenants could expect to spend about 24.4% of their incomes on rent. In contrast, buyers pay 15.1% of their income towards mortgage payments, which is still less than what they spent historically. From 1985 through 2000, home owners spent about 21.3% of their monthly income on mortgage payments. In Denver and 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 San Jose, renters and buyers should each plan to put about 42% of their incomes towards housing. ‘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 Svenja Gudell. ‘There are good reasons to rent temporarily, for example when moving to a new city, 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,’ added Gudell. The Zillow report says that mortgage payments will continue to be affordable even if mortgage rates rise as expected. If rates reach 6% next year, home buyers can still expect to spend 30% or less of their income on mortgage payments in 265 out of 290 or 91.4% of the metros Zillow analysed, 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. Continue reading →

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