Renting Less Affordable Than Ever Before, While Mortgages Remain Affordable, by Historical Standards

Renting Less Affordable Than Ever Before, While Mortgages Remain Affordable, by Historical Standards

Renting Less Affordable Than Ever Before, While Mortgages Remain Affordable, by Historical Standards

The FINANCIAL -- Paying for a mortgage is still affordable, while rent takes up more income than ever in most major metro areas, according to a Zillow analysis of U.S. rental and mortgage affordabilityi in the second quarter of 2015.

Rental affordability worsened over the last year, while mortgage affordability stayed essentially the same. Renters in the U.S. can expect to put 30.2 percent of their monthly income toward rent – the highest percentage ever. Before the real estate bubble and bust, U.S. renters could expect to spend about 24.4 percent of their incomes on rent. 

Buyers should expect to pay 15.1 percent of their income towards mortgage payments, which is still less than what they spent historically. From 1985 through 2000, homeowners spent about 21.3 percent of their monthly income on mortgage payments.

In Denver and four California metros, both renters and buyers can expect to pay more of their income towards either rent or mortgage payments than in pre-bubble years. In hot San Jose, renters and buyers should each plan to put about 42 percent of their incomes towards housing.

"Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own healthcare," said Zillow Chief Economist Dr. Svenja Gudell. "There are good reasons to rent temporarily – when you move to a new city, for example – but from an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it's a good time to buy a home and start putting your money toward a mortgage."

Mortgage payments will continue to be affordable even if mortgage rates rise as expected. If rates reach six percent next year, home buyers can still expect to spend 30 percent or less of their income on mortgage payments in 265 out of 290 (91.4 percent) of the metros Zillow analyzed, and mortgage payments will be considered more affordable than in pre-bubble years in 72.1 percent of metros.

Rents, on the other hand, are already unaffordable compared to historic norms in 77 percent of metros, and with relatively stagnant wage growth, this likely won't improve as rents keep climbing.