A majority of Americans are renting on the cheap — at least, compared to what they’d be paying if they bought a home.
Most Americans (64%) live in a county where renting takes up a smaller portion of one’s paycheck than buying, according to a report released Thursday by real estate data firm Attom Data Solutions. And yet in more than half (54%) of housing markets — 240 of 447 U.S. countries — buying a median-price home is more affordable than renting a three-bedroom property,
Even if they can’t afford to buy, the majority of people are renting in areas where they get the most bang for their buck. “The buy-versus-rent calculus is shifting toward renting being more affordable,” said Daren Blomquist, vice president at Attom Data Solutions.
What’s contributing to this shift toward renting?
Interest rates are expected to increase throughout 2018, making buying a home with a mortgage less affordable for many. And tight housing inventory across the country is fueling competition for homes that makes them more expensive. Plus, Blomquist said the “drive until you afford” mentality made many once-affordable suburbs vastly more expensive.
The Republican tax bill has further complicated the math in deciding whether to rent or buy, according to the Urban Institute, a Washington, D.C.-based think tank. Under the 2017 tax code, a family of three with an annual income of $150,000 would be better off buying if their rent exceeded $1,507 per month. But with the new tax code, they’d have to pay more than$1,885 per month to make buying worthwhile.
“Do we expect people not to buy because of these changes? At the margin, yes,” researchers wrote.
Rent are rising faster than wages in most markets
Collectively, American renters paid a total of $485.6 billion in 2017, up $4.9 billion from the $480.7 billion in 2016. That’s according to an analysis by Zillow, a real estate and rental website. Renters in Las Vegas, Minneapolis and Charlotte felt that increase the most. In each of those cities, rent rose more than 7% since 2016.
Rental income as a share of gross domestic product hit an all-time high in the first quarter of 2017, according to the U.S. Labor Department due to high demand and limited housing supply.
What’s more, in 60% of markets, including Chicago and Los Angeles, rents are rising faster than wages. As a result, more renters may also find themselves priced out of the housing market, since home prices are appreciating more quickly than rents in 59% of markets.
Take Huntsville, Ala., the most affordable rental market in the country, according to Attom Data Solutions: On average, only 22.3% of wages there went to rent. But home prices rose nearly 11% between 2016 and 2017, as investors flocked and bought up properties to rent out. And the prevailing wages in places like Huntsville aren’t as high as in cities like New York or Seattle.
“It’s great in theory to buy in those markets and have a lot of disposable income, but the problem is going to be finding a job period or a job that will pay as well,” Blomquist said.