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Renting Less Affordable Than Ever Before, While Mortgages Remain Affordable, by Historical Standards
Rent is unaffordable in three-quarters of U.S. housing markets, especially high demand markets like Miami, San Francisco, and San Jose
- Renters can expect to spend 30 percent of their income on rent, while buyers can expect to spend 15 percent of their monthly income on a monthly mortgage payment.
- Rental affordability worsened year-over-year in 28 of the 35 largest metro areas covered by Zillow.
- Denver, Los Angeles, San Francisco, San Jose, and San Diego are unaffordable for both renters and buyers.
Aug 13, 2015
SEATTLE, Aug. 13, 2015 /PRNewswire/ -- Paying for a mortgage is still affordable, while rent takes up more income than ever in most major metro areas, according to a Zillow® analysis of U.S. 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 U.S. can expect to put 30.2 percent of their monthly income toward rent – the highest percentage ever. Before the real estate bubble and bust, U.S. renters could expect to spend about 24.4 percent of their incomes on rent.
Buyers should expect to pay 15.1 percent of their income towards mortgage payments, which is still less than what they spent historically. From 1985 through 2000, homeowners spent about 21.3 percent 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 hot San Jose, renters and buyers should each plan to put about 42 percent 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 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."
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 percent or less of their income on mortgage payments in 265 out of 290 (91.4 percent) of the metros Zillow analyzed, and mortgage payments will be considered more affordable than in pre-bubble years in 72.1 percent of metros.
Rents, on the other hand, are already unaffordable compared to historic norms in 77 percent of metros, and with relatively stagnant wage growth, this likely won't improve as rents keep climbing.
|
Metro Area |
Current Percentage of Monthly Income Spent on Mortgage Payment (Q2 2015) |
Historic Percentage of Monthly Income Spent on Mortgage Payment (1985-2000) |
Forecasted Percentage of Monthly Income Spent on Mortgage Payment at 6% |
Current Percentage of Monthly Income Spent on Rent (Q2 2015) |
Historic Percentage of Monthly Income Spent on Rent (1985-2000) |
|
United States |
15.1% |
21.3% |
19.5% |
30.2% |
24.4% |
|
New York-Northern New Jersey |
25.6% |
32.2% |
32.1% |
41.3% |
25.3% |
|
Los Angeles, CA |
39.9% |
34.6% |
50.2% |
48.9% |
35.6% |
|
Chicago, IL |
13.7% |
23.1% |
17.6% |
30.8% |
21.8% |
|
Dallas-Fort Worth, TX |
12.2% |
20.2% |
16.5% |
28.7% |
21.5% |
|
Philadelphia, PA |
14.6% |
20.7% |
18.5% |
30.0% |
19.3% |
|
Houston, TX |
12.2% |
14.8% |
15.9% |
30.6% |
23.5% |
|
Washington, DC |
17.5% |
23.3% |
21.8% |
26.8% |
16.8% |
|
Miami-Fort Lauderdale, FL |
20.5% |
20.6% |
26.2% |
44.5% |
27.5% |
|
Atlanta, GA |
12.3% |
19.8% |
16.0% |
25.8% |
18.3% |
|
Boston, MA |
21.7% |
26.0% |
27.2% |
34.4% |
27.0% |
|
San Francisco, CA |
41.4% |
37.0% |
54.7% |
46.7% |
29.9% |
|
Detroit, MI |
10.0% |
17.4% |
13.1% |
25.3% |
17.7% |
|
Riverside, CA |
23.6% |
25.8% |
31.4% |
36.2% |
31.1% |
|
Phoenix, AZ |
17.3% |
20.6% |
22.4% |
28.1% |
21.7% |
|
Seattle, WA |
22.7% |
25.7% |
30.3% |
31.6% |
23.2% |
|
Minneapolis-St Paul, MN |
13.7% |
19.8% |
17.5% |
25.6% |
19.7% |
|
San Diego, CA |
34.1% |
32.8% |
43.4% |
43.7% |
33.9% |
|
St. Louis, MO |
11.0% |
17.1% |
14.3% |
24.2% |
20.1% |
|
Tampa, FL |
14.6% |
18.8% |
18.9% |
32.4% |
26.8% |
|
Baltimore, MD |
15.5% |
22.0% |
19.4% |
29.3% |
24.8% |
|
Denver, CO |
21.1% |
21.0% |
28.1% |
35.0% |
23.4% |
|
Pittsburgh, PA |
10.7% |
15.9% |
13.7% |
24.6% |
26.9% |
|
Portland, OR |
21.6% |
22.2% |
28.8% |
32.1% |
22.6% |
|
Sacramento, CA |
26.0% |
29.8% |
34.1% |
33.5% |
31.1% |
|
San Antonio, TX |
12.7% |
18.6% |
16.5% |
29.6% |
24.9% |
|
Orlando, FL |
16.1% |
21.0% |
20.9% |
32.7% |
22.6% |
|
Cincinnati, OH |
11.2% |
19.8% |
14.4% |
26.9% |
19.6% |
|
Cleveland, OH |
10.8% |
20.0% |
13.9% |
27.1% |
21.2% |
|
Kansas City, MO |
11.1% |
21.2% |
14.4% |
25.5% |
16.0% |
|
Las Vegas, NV |
16.2% |
24.8% |
21.4% |
27.1% |
22.9% |
|
San Jose, CA |
41.9% |
35.1% |
55.3% |
41.5% |
25.6% |
|
Columbus, OH |
11.8% |
20.3% |
15.3% |
26.2% |
19.8% |
|
Charlotte, NC |
13.2% |
18.8% |
17.1% |
26.8% |
18.0% |
|
Indianapolis, IN |
10.9% |
23.5% |
14.2% |
26.0% |
18.6% |
|
Austin, TX |
16.5% |
18.4% |
21.5% |
31.6% |
21.3% |
About Zillow
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 Zillow's Chief Economist Dr. Svenja 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. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z), and headquartered in Seattle.
Zillow is a registered 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 mortgage 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.
SOURCE Zillow
For further information: Lauren Braun, Zillow, 206-757-2701 or press@zillow.com