Paying a mortgage remained cheaper than paying rent in most parts of the U.S. This past third quarter, although buyers who make a low downpayment may end up spending more to own than to rent in some areas, per a new ZiLLOW report of housing costs.
Renters earning the U.S. Median of $53,620 spent 29.9 percent of their income to rent in the third quarter. Buyers who earn the U.S. Median and buy a home costing the Zillow-estimated U.S. Median of $176,500 spent 15.3 percent of their income on the mortgage.
The share of income spent on rent rose from its past second-quarter estimate of 29.5 percent, while the share of income to pay a mortgage stayed the same.
In its analysis, Zillow extracted out first-time buyers who might put down a downpayment as low as 5 percent. Those buyers will spend a little more, about 17 percent, per month to own because of fees and mortgage insurance.
“Homeownership remains very accessible for buyers that can scrape together a downpayment — even if that downpayment is relatively modest,” said Zillow Chief Economist Stan Humphries in a release.
The ability to come up with a downpayment, however, is likely stopping renters from buying, Humphries said. Zillow’s analysis, in fact, illustrates that for low-downpayment, first-time homebuyers, paying a mortgage can be more expensive in some cities than renting.
Renters in Los Angeles can expect to spend 47.9 percent of their income each month on the lease, but first-time buyers putting up a low downpayment will spend 50.7 percent on the mortgage payment.
Renting is either less expensive or marginally more expensive in other West Coast cities like Portland, Oregon, San Francisco, San Diego; and San Jose, California. In Seattle, where the median income is $70,352, renters spend 30.8 percent of their income per month, and first-time buyers spend 27.3 percent.
“What keeps me up at night is the fact that it still remains so difficult for so many potential buyers to make those particular stars align, largely because renting is so unaffordable these days,” said Humphries. “It’s very difficult to come up with a downpayment when so much of your monthly paycheck — especially on an entry-level salary — is going to your landlord instead of your savings.”
In other parts of the country, however, renting is vastly more expensive than buying. In Indianapolis, where the median income is close to the national median, first-time buyers with a low downpayment will spend 13.5 percent of their income on the mortgage, regular homebuyers will spend 10.8 percent and renters will spend 25.8 percent.