As rents all over the US continue to soar upwards, online real estate database Zillow has recently found out that renting a home is now twice as expensive as buying one.
According to their recent affordability report, in the third quarter of 2014, renters in the US were spending an average of 30 per cent of their monthly incomes on rent, while homeowners were spending just 15 per cent of their monthly incomes on their mortgage payment.
These findings shed light on a major shift that has occurred in the US housing market over the past few years. In the years before the real estate bubble, between 1985 and 2000, rent was usually more affordable compared to buying houses, in most US cities. Now, in most American metros, if you can just come up with a down payment, you are much better off buying your own house than renting.
Even in the cities which have always been famous for high rents — the likes of Boston, San Francisco, Los Angeles, Seattle and New York — renting was more affordable than buying before the US real estate market crashed in 2008. However, since then, rents have been on a steady upward trend across the country while the cost of buying a home has been falling in many parts of the country, to a point where renting is now the less affordable option — sometimes by a huge difference.
This trend of renting being half as affordable as buying a home is one of the reasons why many housing marketing experts believe 2015 will be the year that most Millennials finally break through and enter the real estate market to buy their first home. It is predicted that the persistently high rents will push many of these young potential buyers into homeownership as it continues to make less financial sense to continue renting if they can put together a down payment.
However, it won’t be easy for everyone – some renters, especially the younger ones, are spending so much of their monthly incomes on rent that they will struggle to put away any savings for a down payment, even if they want to take advantage of the current affordability of buying a home.