The latest conundrum in the U.S. housing market is that while a large majority of the country’s top metro areas are more affordable than they’ve ever been, rental property prices are so high that renters in a large percent of those markets can’t afford to save up enough for a down payment to buy a home.
According to a report by the website, Zillow, home prices rose to $174,800 in July, up 0.2 percent from June and 6.5 percent from this time last year but, at the same time. renters signing leases at the end of the second quarter paid 29.5 percent of their income toward rent, compared to 24.9 percent in the pre-bubble period.
What this means for the future of the housing market could be trouble. The effects of rents high enough to keep prospective buyers away from houses is particularly hitting millennials, who are already saddled with uncertain job prospects and enormous student debt. The health of the for-sale market is directly tied to the rental market, where, in many markets, affordability is really suffering.
Thanks mostly to low mortgage interest rates, the affordability of for-sale homes looks much better than the rising rental price market. However, if mortgage rates rise in the coming year, which has been forecasted, more and more homes in the top 100 metro areas will be unaffordable.
At the moment, the affordability of for-sale homes remains strong, which is encouraging for those buyers who can save for a down payment and capitalize on low mortgage interest rates. However, as rental prices keep rising, along with interest rates and home values, saving for a down payment and attaining home ownership becomes that much more difficult for millions of current renters.
Thankfully, in the Phoenix market, rental prices are stabilizing somewhat from steady increases over the past years, and for-sale home affordability is still strong. If you are a renter or buyer, please contact me at 602-739-0095 for guidance in today’s market.