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.

News provided by

Zillow, Inc.

Dec 09, 2014, 08:00 ET

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 Marketplace, Zillow 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.
ⁱⁱZillow 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.

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SOURCE Zillow, Inc.