Nearly two-thirds of Americans live in areas where it is more affordable to rent than buy
Most Americans (64%) live in a county where renting takes up a smaller portion of one’s paycheck than buying.
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. counties — buying a median-price home is actually 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.
So why the seeming contradiction? 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. With a strong jobs market they want to stay mobile and often can’t afford to buy near urban centers where they’re more likely to get a job and a job at higher wages, he said.
Renting may be better than owning to build wealth — if you’re disciplined to invest the money you save by not owning a property, a recent study suggests. “When considering buying and building wealth through equity appreciation versus renting, and reinvesting in a portfolio of stocks and bonds, property appreciation does not change the results,” co-author Ken Johnson, real estate economist at Florida Atlantic University’s College of Business, said.
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 — even younger Americans who aim to pay off their home in 20 or 30 years and reap the appreciation of a rise in home values. And tight housing inventory across the country is fueling competition for homes that makes them more expensive.
Large swaths of the New Jersey and New York commuting belt have seen double-digit house price increases over the last 12 months.
Plus, Blomquist said, the “drive until you afford” mentality has made many once-affordable suburbs and exurbs vastly more expensive. Large swaths of the New Jersey and New York commuting belt have seen double-digit house price increases over the last 12 months, for instance. In fact, single-family rental is the fastest-growing segment of the housing market, according to a report released last month by the Urban Institute, a Washington, D.C.-based think tank.
The Republican tax bill has further complicated the math in deciding whether to rent or buy, according to the Urban Institute. 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.
Starting next year, the new law limits your deduction for state and local income and property taxes to a combined total of $10,000.
As MarketWatch’s Tax Guy Bill Bischoff wrote last month: “Starting next year, the new law limits your deduction for state and local income and property taxes to a combined total of $10,000 ($5,000 if you use married filing separate status). Foreign real property taxes can no longer be deducted. So no more property tax write-offs for your place in Cabo. However, you can still choose to deduct state and local sales taxes instead of state and local income taxes.”
Rents are rising faster than wages in most markets
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. American renters paid $485.6 billion in 2017, up from $480.7 billion in 2016, according to Zillow. Aside from perennially expensive cities to rent like San Francisco and New York, renters in Las Vegas, Minneapolis and Charlotte felt that increase. Rent in those cities has risen over 7% since 2016.
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, because home prices are appreciating more quickly than rents in 59% of markets. And the old adage of not spending more than 30% of your income on rent (or a mortgage) is increasingly difficult in cities like San Francisco and New York.
Take Huntsville, Ala., the most affordable rental market in the country, according to Attom Data Solutions: There, the average renter only devotes 22.3% of their wages 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.
But for those who are no longer happy renting, they may not have much choice. “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.