Rising rents are making renting less and less affordable, while mortgage payments are accounting for a smaller share of income than they have historically, according to new data.
Currently, the median US rental eats up 29.1% of the median monthly income, according to a new study by Zillow. That’s a sharp increase from the years before the housing collapse, when renters spend an average of 25.8% of their income on housing. According to Zillow, renters are spending an average of $1,957 more on rent in 2017 than they did before the crash.
Homeowners, on the other hand, are spending less of their income on house payments than they did before the crash – an average of about $3,300 per year less. Mortgage payments in the third quarter of 2017 took up about 15.4% of the median income, down from 21% previously.
Rent affordability is even worse in expensive markets. In San Jose, renters are spending an average of close to 39% of their rents on income – about $13,525 more this year that the historic level of 26%, Zillow found. Renters in San Francisco are spending an average of $11,236 more this year than they would have if rents had remained proportional to income.
“In most markets, current renters are at a disadvantage compared to years past because paying the rent takes up a much larger share of their income than it did before,” said Dr. Svenja Gudell, Zillow’s chief economist. “For many people, that can mean less cash to put toward paying off student debt, building an emergency fund, or saving for retirement. For those hoping to buy a home, it could be a significant part of their down payment. For parents, it could mean additional childcare or a family vacation. This is another example of how much worse rent affordability has gotten.”
Source: Ryan Smith, Mortgage Professional America, 11-30-17