Households paying the median U.S. rent of $1,416 could afford the monthly costs on an owned home worth $289,505 — roughly double the country’s median home value, according to Zillow, which looked at the cost difference between paying rent and paying a mortgage in 50 U.S. cities.
Of those markets, renters in 37 could afford to buy a home priced above the area median value without paying more in a monthly mortgage payment than they already were in rent each month.
- Cities that turned up especially favorable for renters-turned-owners were Cleveland, Detroit and Milwaukee, where more than 80% of for-sale homes were affordable without raising monthly housing costs. In Boston, Dallas and San Francisco, fewer than 25% of available homes were similarly affordable.
It’s hardly news that the monthly costs associated with owning a home are typically more affordable in most U.S. markets than are those to rent there. Yet turning renters to owners requires surmounting a hurdle that the economy’s slow, if steady, recovery makes a continued challenge: saving up for a down payment.
Seven in 10 respondents to a separate Zillow study released last month said they couldn’t afford to purchase a home because they are unable to come up with the down payment. That’s largely due to elevated home prices across the market, which ticked up 1% from January to February and are 7% ahead of the year-ago mark, according to the latest CoreLogic Home Price Index. Other barriers to homeownership cited in the Zillow survey include current debt, insufficient job security and the inability to qualify for a mortgage.
The higher the prices, the bigger that 20% share. The typical 20% down payment requires at least two-thirds of the median annual U.S. income, and significantly more in higher-priced markets, Zillow noted.
Lenders are responding with mortgage options that let borrowers put less down, while existing lower-down-payment programs are becoming more popular. In 2016, the median down payment was 10%, with first-time buyers reporting a median 6%, according to the Mortgage Bankers Association.
CoreLogic expects price growth to taper this year as more inventory comes online, particularly in the entry-level category.
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