The latest conundrum in the U.S. housing market appears to be that while homes in 94 percent of the country's top metro areas are more affordable than they've ever been, rents are so high that renters in 88 percent of those metros can't afford to save up enough for a down payment to buy a home.
According to the report, home prices rose to $174,800 in July, up 0.2 percent from June and 6.5 percent from this time last year.
At the same time. renters signing leases at the end of the second quarter paid 29.5 percent of their income toward rent, compared to 24.9 percent in the pre-bubble period.
What this means for the future of the housing market could be trouble. The effects of rents high enough to keep prospective buyers away from houses is particularly hitting millennials, who are already saddled with uncertain job prospects and enormous student debt, according to Zillow Chief Economist Stan Humphries.
"The health of the for-sale market is directly tied to the rental market, where affordability is really suffering," Humphries said. "Wages need to grow more quickly than they are, particularly for renters, and growth in home values will need to slow."
Nevertheless, thanks mostly to low mortgage interest rates, the affordability of for-sale homes looks much better. According to Zillow, U.S. home buyers at the end of the second quarter could expect to pay 15.3 percent of their incomes toward a mortgage on the typical home, far less than the 22.1 percent share that homeowners devoted to mortgages in pre-bubble days.
Keep in mind, however, that mortgage rates are expected to rise in the coming year, and when mortgage rates hit 5 percent, the number of unaffordable metros for homeowners among the top 100 will double, according to Zillow. And at 6 percent, the number of unaffordable metros will almost double again.
"The affordability of for-sale homes remains strong, which is encouraging for those buyers who can save for a down payment and capitalize on low mortgage interest rates," Humphries said. But therein lies the caveat: Homeowners typically make a lot more money than those who rent.
According to the U.S. Census Bureau, homeowners on average make $65,514 per year, while the typical renter makes about half of that—$31,888. And this could mean that attaining the American Dream will have to wait for an increasing number of Americans.
"As rents keep rising, along with interest rates and home values, saving for a down payment and attaining homeownership becomes that much more difficult for millions of current renters," Humphries said.