Kriston Capps is a staff writer for CityLab covering housing, architecture, and politics. He previously worked as a senior editor for Architect magazine.
Where it’s more affordable for renters to buy, renters can’t afford to buy. The U.S. housing market paradox isn’t going away in the new year.
If your New Year’s Resolution was to find better financial balance in 2016, especially when it comes to how much of your paycheck goes into your rent, you may need to consider moving, buying a house, or both. Happy New Year!
That’s the takeaway from a new report from RealtyTrac that predicts that buying will continue to be cheaper than renting in more than half of U.S. housing markets in 2016. New year, same deal: Census data released in December show that rental costs are rising nationwide while new housing starts are miserly, even though the costs of home ownership are still low in many places.
This trend will persist into 2016. Using rental data from the U.S. Department of Housing and Urban Development and wage data from the U.S. Bureau of Labor Statistics, RealtyTrac predicts that buying will be a more affordable option than renting in 58 percent of markets, but that rents will outpace wage growth in 57 percent of markets.
So the paradox of the U.S. housing market—it’s more affordable for renters to buy, except renters can’t afford to buy—isn’t going away in the new year.
“In markets where home prices are still relatively affordable, 2016 may be a good time for some renters to take the plunge into homeownership before rising prices and possibly rising interest rates make it increasingly tougher to afford to buy a home,” said Daren Blomquist, vice president at RealtyTrac, in the report.
The squeeze is especially difficult for families. RealtyTrac’s 2016 Rental Affordability Analysis examines rents for three-bedroom homes and apartments. For families looking to make the move from renting to owning, the math is tough to square:
- Average weekly wages are up an average of 2.6 percent (in the second quarter of 2015, from a year ago)
- Rents on three-bedroom units will rise an average of 3.5 percent (in 2016 over 2015, across 504 counties analyzed)
- Median home prices are up an average of 5.0 percent (in the third quarter of 2015, from a year ago, across 504 counties analyzed)
This means that average wage earners will be spending 37 percent of their income on rents for a three-bedroom place in 2016. That’s not affordable, especially when families could be spending 38 percent of their income to own (more expensive, but with all the financial benefits that owning confers). For households whose wages aren’t rising that fast, the option to buy may appear more out of reach even as rents look more unreasonable going forward.
Now that the Federal Reserve is raising interest rates, the costs of home ownership are beginning to rise, if slowly. Advice to buy now may be sound, but it can’t sit that well with people in truly unaffordable housing markets. Or for people for whom a 3-percent down payment is a tricky proposition given slowly rising wages. Or for people whose student debt or shaky credit is keeping them out of the buyers’ bracket. For too many renters, home ownership still looks like an unattainable winners’ bracket.