Renters commit higher share of earnings than buyers do, study finds

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Renters commit higher share of earnings than buyers do, study finds
The distinction has never been clearer: Buying is financially preferable to renting, a new study argues.

Real estate agents know that generally speaking, it's more affordable to buy a home than it is to rent. This is one of the selling tactics commonly used to encourage clients to buy when they're debating between the two. A recent study that examined the current housing marketplace should provide agents with the arsenal they need to back up their assertions.

On average, homebuyers whose wage is the national median - roughly $52,000, according to the Labor Department - spend roughly 15 percent of their earnings on monthly mortgage expenses, according to a recent study conducted by Zillow. That's down from 22 percent, which was the average between 1985 and 1999.

Meanwhile, renters tend to spend much more of their salary on rent, averaging around 30 percent of it during the penultimate quarter of 2014. Historically, the average has been 25 percent, the report detailed

Though home prices have increased in recent years, rental rates have advanced at a faster clip. For example, in Washington, D.C., renters in the nation's capital devote about 27 percent of their annual income to rent payments, versus just 18 percent of what homeowners in the Beltway spend.

The same divide is evident in most major metropolitan statistical areas, the Zillow report concluded, including New York City, Los Angeles, Chicago, Dallas, Houston, Philadelphia and Miami, among others.

Stan Humphries, Ph.D., Zillow's chief economist, indicated that while homebuyers don't have to commit as much of their earnings to housing payments versus renters, it can still be hard for consumers to buy a residence, particularly those who are young or have entered the market for the first time. The good news is that buying conditions are improving every day.

"In time, the allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into homeownership," said Humphries.

Millennials to represent two-thirds of housing formations by 2019
Others argue that first-timers are already participating in the market. Lisa Sturtevant, vice president of research for the National Housing Conference, reminded real estate professionals in November that millennials represented 37 percent of home shoppers this past summer. Should this pace continue, they could represent 67 percent of household formations.

She added that millennials will be competing with baby boomers, many of whom are downsizing now that they're "empty nesters." The share of baby boomers in the nation's largest metropolitan areas is heavily concentrated in Florida, based on Census bureau data compiled by the National Association of Realtors.

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