According to a recent Zillow analysis of third-quarter income and home value data, it is now more affordable to buy a home in most U.S. metros than it was 15 years ago, even for millennials who are putting down less money on homes. Renters, on the other hand, will continue to pay an increasing share of their income to landlords as rents soar but incomes remain flat.
On average, U.S. home buyers making the nation's median income and purchasing the typical U.S. home spent 15.3% of their income on their monthly house payment, down from the historical norm of 22.1% during the 1985-1999 pre-bubble period. U.S. renters spent 29.9% of their monthly income on rent in the third quarter of 2014, up from 24.9% historically.
Younger buyers, generally earning less money and making smaller down payments on a home, should expect to spend slightly more of their income on mortgage payments – 17.4%. Yet, 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 may drive more people into the home buying market, but they also make it difficult for first-time buyers to save for a down payment. Washington, D.C. renters can expect to spend 27.1% of their income on rent, up from 16.2% historically. In Miami, rent as a percentage of income has risen from 26.5% before the bubble to its current 44.5%.
‘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,’ says Zillow Chief Economist Stan Humphries.
‘[But], it still remains difficult for 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,’ Humphries says.