The old debate between whether to rent or buy may be getting more complicated, now that renting is more affordable today than it’s been over the past two years.
According to Zillow [1], renters in Q3 could expect to pay 29.3 percent of their income on the typical rental home. Though that’s still off from the norm of 26 percent, it’s an improvement from Q2 and it’s the lowest level that ratio has been in two years.
Zillow’s Chief Economist, Svenja Gudell, said that with incomes growing and rent rates slowing, rental affordability is steadily heading back towards the mean in about half the major U.S. markets. In the largest 35 metros Zillow studied, rent affordability in 16 markets improved from a year. It also was essentially unchanged in another two. On the flip side, rent affordability worsened in 17 large markets compared to a year ago.
“Improving rental affordability, however small, is likely to have a host of positive impacts on the housing market overall,” she said. “More-affordable rents may encourage younger workers and recent college graduates that are just starting their careers to move into apartments. For older renters, less money sent to their landlords each month may make it easier to save for a down payment, easing the transition from renting to homeownership.”
But remember, Gudell said‒‒improving rent affordability doesn’t spell automatic rent affordability. The Q3 average was still higher than normal, and in more than half of metros, it went up. In some areas, like Los Angeles, San Francisco, Miami, San Diego, and New York, the income needed to afford median rent is more than 40 percent.
Also, despite improvements in rent affordability, Gudell said that compared to buying a home and paying a mortgage, “renting is currently very unaffordable.” Nationally, mortgages require about 14 percent of one’s income, on average, she said.