- As rents rise and incomes stagnate, renters are spending more of their income on the roof over their head than in previous years.
It’s getting harder for younger generations of renters to save to buy their own home, with rising rents gobbling up more and more of their income. Meanwhile, homeowners are finding their monthly mortgage payments are coming down.
According to new Zillow research, affordability is worsening for renters as stagnant incomes and rising rents are costing them an extra $2,000 every year. Renters are being asked to give 29.1 percent of their income on rent, looking at the median U.S. rental and the median monthly income, compared with the 25.8 percent they needed in the pre-bubble years, 1985 to 2000.
The financial position for homeowners, on the other hand, is improving. They are spending $3,300 less a year of their income on house payments on a typical home, and mortgage payments are eating up a smaller share of income. Home payments demanded 15.4 percent of income in Q3 of 2017 compared with 21 percent in previous years.
Renters in the nation’s larger markets are paying a higher percentage of their income on rent. In expensive cities such as San Jose, California, renters are spending nearly 39 percent of their income on rent compared with 26 percent historically. This is costing them an extra $13,525 this year.
San Franciscans are similarly afflicted, in their case spending an extra $11,236 more on rent than if the cost of rent had remained proportional to income.
Pittsburgh, is one of the few cities where rents haven’t budget, with tenants spending a smaller share of income on rent than they did in previous years — around $3,400 less per year than historically.
“In most markets, current renters are at a disadvantage compared to years past because paying the rent takes up a much larger share of their income than it did before,” said Zillow chief economist, Dr. Svenja Gudell. “For those hoping to buy a home, it could be a significant part of their down payment.”
First-time homebuyers must save more than $100 a month for a down payment just to keep up with rising home costs, said the company. While interest rates are low, making monthly mortgage payments affordable, the majority of renters say the down payment is the biggest barrier to their buying a home.