High rents in many U.S. markets prevented many renters from becoming homeowners in the third quarter of 2015, according to real estate website Zillow.com.
After analyzing income, rental and housing sale data, the Seattle-based company determined mortgages remain significantly more affordable than rents in many markets, but added many renters could not save mortgage down payments because of their high rents.
"In general, paying a mortgage is more affordable than renting, and has been for some time," Zillow Chief Economist Svenja Gudell said. "Unfortunately, many current renters aren't able to realize the savings that come with homeownership because as home values and rents keep rising, it's getting increasingly difficult to clear the down payment hurdle."
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Gudell continued, "It's not uncommon for a 20% down payment on even a modest home to represent savings of $50,000 or more in some areas. And that number itself is a moving target, rising as home values escalate and harder to achieve as more money goes to landlords and less goes to savings."
Making a smaller down payment often means facing higher mortgage insurance costs, she said, so it's no surprise renters are turning to friends and family members for down payment assistance.
Zillow used Denver as an example: On average, a mortgage in Denver absorbed about 21% of an average homeowner's income in Q3 2015, compared to the 34% of an average renter's income that went to a landlord. But since the median value of a home in Denver is $313,800, a 20% down payment equaled $62,760, a 10% down payment was $31,380 and even a 3% down payment for a loan with Federal Housing Administration insurance equaled $9,414.
Zillow added that in 34 of the 35 largest metropolitan areas, rent is less affordable than it was historically on average. Only in Pittsburgh were rents, on average, a smaller percentage of renters' income compared to historic numbers, Zillow said. Historically on average, Pittsburgh renters used 27% of their incomes in rent, but in Q3 2015, they paid 25%, the company reported.
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