Press Releases

New Zillow Report: Buying Twice as Affordable as Renting

Even first-time buyers with low down-payments can expect to pay just 17 percent of their income toward mortgage payments as rents soar

- Homebuyers should expect to spend 15.3 percent of their incomes on mortgage payments for a typical home. Renters should expect to pay twice as much -- 29.9 percent of their median incomes -- to rent.

- Likely first-time, 23-to-34-year-old buyers should expect to spend 17.4 percent of their monthly income on house payments. Historically, they spent about 22.5 percent of their income to purchase a home.

- It was 30.8 percent more affordable to buy a home in the third quarter than it was in the pre-bubble years (1985 -1999). It was 19.8 percent less affordable to rent, compared to the pre-bubble years.

Dec 9, 2014

SEATTLE, Dec. 9, 2014 /PRNewswire/ -- It's more affordable to buy a home now in most U.S. metros than it was 15 years ago, even for millennials putting down less money on a home, according to a Zillow analysis of third quarter income and home value data. Renters, however, continue to pay an increasing share of their income to their landlords as rents soar and incomes remain flat.

On average, U.S. home buyers making the nation's median income and purchasing the typical U.S. home spend 15.3 percent of their income on their monthly house payment, down from the historical norm of 22.1 percent during the pre-bubble period from 1985 to 1999. On average, U.S. renters spent 29.9 percent of their monthly income on rent in the third quarter of 2014, up from 24.9 percent historicallyi.

Younger buyers, earning less money in many areas and making smaller down payments on a home, should expect to spend slightly more of their income on mortgage payments – 17.4 percentii. Homes for younger buyers remain affordable thanks to continued low mortgage interest rates and their tendency to shop for less expensive homes.

Continuously rising rents across the country could drive more people into the home-buying market, but they also make it more difficult for first-time buyers to save for a down payment. Washington, DC renters can expect to spend 27.1 percent of their income on rent, up from 16.2 percent historically. In Miami, rent as a percentage of income has risen from 26.5 percent before the bubble to 44.5 percent currently.

"Despite rising home values, homeownership remains very accessible for buyers that can scrape together a down payment – even if that down payment is relatively modest – find a home to buy and secure financing," said Zillow Chief Economist Dr. Stan Humphries. "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. 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. Buying conditions are getting better every day, and in time the allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into homeownership."

Homeownership rates in the U.S. have steadily declined, even as the housing market has recovered, in part because millennials have delayed their entry into the housing market. But it is likely that by the end of 2015, millennials (aged 23-34) will overtake Generation X as the biggest group of U.S. homebuyersiii, a transition aided by widespread home affordability.

Metro Area

 Q3 2014 Median Household Income

 Zillow Home Value Index

(Q3 2014)

% of monthly income devoted to mortgage payments

(Q3 2014)

% of monthly income devoted to mortgage payment for first-time homebuyers

(Q3 2014)

% of monthly income devoted to rent

(Q3 2014)

United States

$        53,620

$        176,500

15.3%

17.4%

29.9%

New York, NY

$        69,337

$        381,600

25.6%

30.6%

40.5%

Los Angeles, CA

$        60,650

$        531,000

40.8%

50.7%

47.9%

Chicago, IL

$        62,652

$        188,200

14.0%

16.2%

31.5%

Dallas, TX

$        61,310

$        148,400

11.3%

14.5%

27.7%

Philadelphia, PA

$        64,823

$        202,700

14.6%

18.1%

28.8%

Houston, TX

$        59,953

$        150,300

11.7%

15.0%

29.4%

Washington, DC

$        92,610

$        359,300

18.1%

24.0%

27.1%

Miami, FL

$        47,896

$        205,200

19.9%

21.2%

44.5%

Atlanta, GA

$        59,927

$        151,900

11.8%

15.2%

24.1%

Boston, MA

$        75,059

$        362,700

22.5%

26.3%

34.1%

San Francisco, CA

$        77,409

$        689,900

41.5%

43.3%

45.9%

Detroit, MI

$        52,694

$        113,500

10.0%

10.6%

24.1%

Riverside, CA

$        54,085

$        277,900

23.9%

28.8%

36.4%

Phoenix, AZ

$        53,487

$        193,700

16.9%

20.9%

27.3%

Seattle, WA

$        70,352

$        333,700

22.1%

27.3%

30.8%

Minneapolis, MN

$        69,569

$        213,100

14.3%

17.7%

26.1%

San Diego, CA

$        63,607

$        466,100

34.1%

42.9%

42.5%

St. Louis, MO

$        54,746

$        129,100

11.0%

12.5%

24.1%

Tampa, FL

$        46,050

$        145,400

14.7%

14.7%

32.4%

Baltimore, MD

$        72,010

$        241,800

15.6%

19.0%

28.5%

Denver, CO

$        64,120

$        271,200

19.7%

25.4%

32.9%

Pittsburgh, PA

$        51,668

$        123,800

11.2%

11.7%

26.6%

Portland, OR

$        60,071

$        274,100

21.2%

28.3%

30.5%

Sacramento, CA

$        59,161

$        325,800

25.6%

31.1%

32.2%

San Antonio, TX

$        51,884

$        144,300

12.9%

15.1%

29.6%

Orlando, FL

$        48,905

$        168,100

16.0%

19.7%

32.1%

Cincinnati, OH

$        55,093

$        135,900

11.5%

13.9%

26.0%

Cleveland, OH

$        49,842

$        120,600

11.3%

13.9%

27.7%

Kansas City, MO

$        58,212

$        137,400

11.0%

13.2%

24.2%

Las Vegas, NV

$        51,609

$        181,600

16.4%

19.3%

27.5%

San Jose, CA

$        99,230

$        813,500

38.2%

43.7%

37.9%

Columbus, OH

$        55,836

$        144,300

12.0%

14.1%

27.0%

Charlotte, NC

$        55,332

$        155,900

13.1%

15.3%

26.3%

Indianapolis, IN

$        55,238

$        128,100

10.8%

13.5%

25.8%

About Zillow:
Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. Dr. Humphries and his 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. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage MarketplaceZillow Rentals, Zillow Digs®, Postlets®, Diverse Solutions®, Mortech®, HotPads™, Retsly and StreetEasy®. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets, Mortech, Diverse Solutions, StreetEasy, Retsly, and Digs are registered trademarks of Zillow, Inc. HotPads is a trademark of Zillow, Inc.

i Zillow determined affordability by analyzing the current percentage of a metro area's median income needed to afford the rent or the monthly mortgage payment on a median-priced home or apartment, and compared it to the share of income needed in the pre-bubble years between 1985 and 1999. For purchase affordability, Zillow assumed a 20 percent down payment and a 30-year, fixed-rate mortgage at prevailing mortgage rates pulled from the Freddie Mac Primary Mortgage Market Survey. If the share of monthly income currently needed to afford the median-priced home or apartment is greater than it was during the pre-bubble years, that area is considered unaffordable for typical buyers or renters.
ii Zillow determined first-time buyer affordability by assuming a first-time buyer made the median income of all 23-34 year olds in a given area, would be putting 5 percent down on a home, would be shopping for a home priced according to the 33.3 percentile of all home values. In order to secure a loan with less than 20 percent down, the first-time buyer also pays primary mortgage insurance and upfront fees. The values used for these additional costs were pulled from the annual Mortgagee Letters release from the Department of Housing and Urban Development.
iii Data from the July 2014 Zillow Housing Confidence Index.

 

SOURCE Zillow, Inc.

For further information: Emily Heffter, Zillow, 206-757-2701 or press@zillow.com


rss