New research from Zillow reveals that rising rents mean that the median rent nationwide is $1,416 which would cover mortgage and other monthly costs for a home valued at $289,505 – the national median home is valued at $196,500 and represents 57 per cent of inventory.
The one major barrier to renters making the switch to homeownership though continues to be the downpayment.
Renters could afford an above-median-value home in 37 of the 50 cities analyzed by Zillow, without increasing costs. In Cleveland and Milwaukee, they could afford a home more than twice as expensive as the local median. In both cities, that means more than 80 per cent of the available inventory.
One city where the cost of owning a median-valued home including monthly mortgage costs would exceed median rent is San Francisco where a typical renter would pay $4,235 and the equivalent ownership costs would buy a home valued at $865,857, just 23 per cent of the inventory. The city’s median valued home is $1.17 million.
The buy/rent decision is not just about the finances though and renters who can save the downpayment and want to maintain current levels of expenses may need to make compromises to own their home.
“It's worth noting that many of the more affordable homes for sale may be older, smaller and/or located in less-desirable neighborhoods than they might like,” explained Zillow’s chief economist Dr. Svenja Gudell. “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.”
Meanwhile, data from the Census Homeownership and Vacancy Survey shows that the number of owner occupied households grew faster than renter households in the first quarter of 2016. There were 850,000 owner households and 365,000 renter households.
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If renters were to buy, they could afford a home priced nearly 50 per cent higher than the median without increasing their costs.