Get Free of the Renter’s Trap!

If not careful, it’s easy for those currently renting to get caught up in a cycle where increasing rents make it impossible for you to save for a down payment.

Even though home prices and interest rates are rising, they are still very affordable for buyers who are able to save enough for a down payment and take advantage of the historically low rates. But with rents going up nearly as fast as home prices, attaining homeownership becomes very difficult for renters who find they have nothing left over each month to save for a downpayment.

Here is an interesting statistic recently uncovered by Zillow in their recent press release called “Only a Dozen Large Metro Housing Markets Feature Both Affordable For-Sale Housing and Affordable Rental Housing: While homes remain more affordable to buy in 94 of the country’s 100 largest metros compared to historic averages, renting is more expensive than ever in 88 of the country’s 100 largest markets.

The current Zillow Home Value Index is $174,800, while the current Zillow Rent Index is $1,318.

The reason why rental affordability is currently much worse than mortgage affordability is because rents didn’t go through the huge drop in home values during the recession. Instead, they have continued to climb steadily upward.

Did you know that nationally, renters currently pay 29.5% of their income to rent, compared to 24.9% during the pre-bubble period. In contrast, U.S. home buyers typically pay 15.3% of their incomes to a mortgage, much less than the 22.1% they paid in pre-bubble days.

The problem is that the long-term health of the “for sale” market is directly tied to the rental market, because in most cases, the buyers of tomorrow are the renters of today. Particularly the millennial generation finds itself in the renter’s trap where uncertain job prospects and crippling student debt keep them from being able to save any more above their rent each month.

The only way to solve this challenge is for wages to grow more quickly than they currently are, and for growth in home values to slow down. Currently the median annual income nationwide is $53,216. But here’s the interesting statistic: homeowners on average make $65,514 per year, while renters renters typically make $31,888.

Ironically, many renters may have already saved enough for a down payment without even realizing it. It’s not that they’re not qualified; it’s that they think they’re not qualified. According to Freddie Mac, right now a person can get a conforming, conventional mortgage with as little as 5%. In fact, more than 20% of borrowers who took out conventional mortgages in 2014 put down 10% or less.

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