The FINANCIAL -- RealtyTrac on December 23 released its 2016 Rental Affordability Analysis, which shows that buying is still more affordable than renting in 58 percent of U.S. housing markets despite home price appreciation outpacing rent growth in 55 percent of markets. The report also shows that the rise in rents is outpacing weekly wage growth in 57 percent of markets.
The analysis included recently released rental data from the U.S. Department of Housing and Urban Development, wage data from the Bureau of Labor Statistics along with public record sales deed data from RealtyTrac in 504 counties with a population of at least 100,000.
“Renters in 2016 will be caught between a bit of a rock and a hard place, with rents becoming less affordable as they rise faster than wages, but home prices rising even faster than rents,” said Daren Blomquist, vice president at RealtyTrac. “In markets where home prices are still relatively affordable, 2016 may be a good time for some renters to take the plunge into homeownership before rising prices and possibly rising interest rates make it increasingly tougher to afford to buy a home.”
Rents rising faster than wages, slower than home prices
Rents on three-bedroom properties will increase an average of 3.5 percent in 2016 compared to 2015 across all 504 counties analyzed, according to the HUD data. Meanwhile, average weekly wages in the second quarter of 2015 (the most recent wage data available) were up an average of 2.6 percent from a year ago and median home prices were up an average of 5.0 percent in the third quarter of 2015 compared to a year ago across all 504 counties.
Markets with the biggest increase in rents are counties in Sumter, South Carolina, Burlington, North Carolina, Goldsboro, North Carolina, Houma-Thibodaux, Louisiana, and Missoula, Montana. Among counties with a population of at least 1 million, those with the biggest increases in rents are Santa Clara County, California in the San Jose metro area (up 9.3 percent); Travis County, Texas in the Austin metro area (up 8.0 percent); San Diego County, California (up 7.5 percent); Cook County, Illinois in the Chicago metro area (up 7.3 percent); and Bexar County, Texas in the San Antonio metro area (up 7.2 percent).
Markets with the biggest decrease in rents are counties in Johnson City, Tennessee, Abilene, Texas, California-Lexington Park, Maryland, Ithaca, New York, and Roseburg, Oregon. Among counties with a population of at least 1 million, those with the biggest decreases in rents are Suffolk and Nassau counties in Long Island, New York (both down 6.8 percent); Clark County, Nevada in the Las Vegas metro area (down 1.4 percent); Sacramento County, California (down 0.4 percent); and Contra Costa County, California in the San Francisco metro area (down 0.3 percent).
Buying more affordable than renting in 58 percent of markets
Across all 504 counties analyzed, average wage earners will need to spend 37 percent of their income on rents for a three-bedroom property in 2016, slightly less than the 38 percent of income to make monthly house payments — assuming a 3 percent down payment and including mortgage, taxes, insurance and mortgage insurance — on a median priced home on average across all 504 counties.
Renting was more affordable than buying in 213 of the 504 counties analyzed (42 percent), including counties in Los Angeles, Houston, San Diego, New York City (Brooklyn), and Dallas. Buying was more affordable than renting in 291 counties (58 percent) including counties in Chicago, Phoenix, Miami, the Inland Empire of Southern California, Las Vegas and Detroit.
“Low interest rates and reasonable housing prices make South Florida ripe for buying. Our rental rates have risen dramatically, now with low down payment options available it is a good time to lock in long term low interest rates,” said Mike Pappas, CEO and president of the Keyes Company, covering the South Florida market.
“A strong local economy and lack of inventory have continued to drive prices higher and higher. That said, the further you travel from the job centers, there are some sub-markets where it’s actually more affordable to buy than rent,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market where it is more affordable to rent than buy. “But as our transit infrastructure improves over time, I believe the pace of home price growth will pick up in these areas too.”
Least Affordable and Most Affordable Rental Markets
The least affordable markets for rents (where average wage earners need to spend the highest percentage of their income on renting a three-bedroom property) in 2016 are counties in Honolulu, Washington, DC, New York City, and the Northern California metros of Salinas, Santa Cruz and San Francisco. In all of the top five least affordable rental markets, average rents represent more than 60 percent of average wages.
The most affordable markets for rents in 2016 are counties in Huntsville, Alabama, Peoria, Illinois, Davenport, Iowa, Atlanta, Georgia, and Pittsburgh, Pennsylvania. In all of the top five most affordable rental markets, average rents represent 25 percent or less of average wages.
“Northern Colorado is experiencing similar increases in property values and rents as the Denver metro area. One of the largest factors to consider as a renter is when to jump on the home buying wagon and begin investing in what is for many the largest assets anyone can own,” said Al Detmer, broker associate at RE/MAX Alliance, covering the Greeley market in Colorado. “If a buyer waits just one year to purchase they can loose buying power combined with a simple quarter point interest hike and now what they could have purchased similar to what their renting in size fit and finish just went out the window. Renters now is the right time to buy!”
Best and Worst Rental Markets for Millennials
Out of 52 counties where the share of the millennial population (born between 1979 and 1993) increased at least 10 percent during the housing crisis, from 2008 to 2013, the most affordable were Fulton County, Georgia, in the Atlanta metro; Durham County, North Carolina in the Durham metro; Harris County, Texas in the Houston metro; Dallas County, Texas, in the Dallas metro; and Mecklenburg County, North Carolina, in the Charlotte metro. Average rents accounted for 27 percent or less of average wages in all of the top five most affordable rental markets for millennials.
Other “millennial magnet” markets where average rents represent less than 30 percent of average wages included counties in Columbus, Ohio; St. Louis; Indianapolis; Milwaukee; Kansas City; Nashville; Little Rock, Oklahoma City; Minneapolis; Des Moines; Richmond, Virginia; Portland; and Philadelphia.
Among the 52 counties with at least a 10 percent increase in the share of millennials between 2008 and 2013, the least affordable for renters were Kings County, New York (Brooklyn); Queens County, New York (Queens); Virginia Beach City, Virginia; Onslow County, North Carolina in the Jacksonville metro; and San Francisco County. Average rents in all five of these markets require more than 43 percent of average wage earner’s income.
Other “millennial magnet” markets where rents represent more than one-third of average wages include counties in Panama City, Florida; Seattle; Clarksville, Tennessee; Orlando; Fayetteville, North Carolina; Portland; Charleston, South Carolina; Baltimore; Denver, New Orleans; and Austin, Texas.
“The aggressive growth of companies like Amazon, and the arrival of several Silicon Valley newcomers like Facebook, Google, and Apple have made Seattle an increasingly popular spot for Millennials. Not only do many of these Millennials have stable employment, but strong job prospects going forward, and a rosy outlook for future salary growth,” continued Gardner.