Rents are now so high in the United States that the typical tenant could buy a home nearly 50% more expensive than the median valued property and keep the same monthly housing budget, new research has found.
The median rent is $1,416 per month, which is enough to cover the monthly expenses associated with owning a $289,505 home, more expensive than the median national value of $196,500.
The report from real estate firm Zillow states that renting is more expensive than ever before at a time when affordability is a growing concern across the country. Rent requires almost half of the median income in some of the nation’s most expensive markets.
But while a mortgage payment is cheaper than a rental payment on a monthly basis, it is saving enough money for the down payment that is holding back many renters from crossing over into home ownership, the firm says.
Zillow analysed the median rent payment in cities across the country to determine how much home a prospective buyer could afford without spending more on a mortgage than they were currently spending on rent.
It factored in all monthly home ownership costs, such as property taxes, maintenance and insurance. In 37 of the 50 cities Zillow analysed, renters could buy a home worth more than the median valued home in their city without spending more on monthly housing costs.
Renters paying the median rent in Cleveland and Milwaukee could afford to buy a home more than twice as expensive as the local median home value. In Cleveland, prospective buyers can buy a home valued at $174,194 while keeping all monthly housing costs the same this represents more than 80% of homes currently on the market.
San Francisco is one of the only cities in the country where a monthly rental payment would not cover the costs of owning the median valued home. Renters in San Francisco who want to keep monthly expenses the same would have to buy a home valued at $865,857, representing just 23% of homes currently on the market. The median home value in the city of San Francisco is over $1 million.
‘Renters hesitant to enter the home buying market for fear of not being able to find an affordable home should be encouraged to discover they may have more options than they thought,’ said Zillow chief economist Svenja Gudell.
‘However, it’s worth noting that many of the more affordable homes for sale may be older, smaller and/or located in less desirable neighbourhoods than they might like. The decision between buying and renting is a financial trade-off between saving more each month on a mortgage payment versus spending more on rent but taking advantage of the location and lifestyle amenities urban renting often offers,’ she explained.
‘Recent slowdowns in rent growth may take some of the edge off for renters saving to become homeowners. This is good news, since saving a down payment, qualifying for a loan and finding a home available at a manageable price remain hurdles for millions of aspiring buyers,’ she added.
