As home prices continue to grow and housing affordability diminishes, a new report maintains that the cost of buying a home is still only about half the cost of renting.
Looking at trends in incomes, home values, and rental prices in the third quarter, Zillow estimates that U.S. homeowners spend on average 15.3 percent of their income on monthly mortgage payments. For younger homebuyers, who typically make smaller down payments, that figure is only slightly higher: 17.4 percent.
"Homes for younger buyers remain affordable thanks to continued low mortgage interest rates and their tendency to shop for less expensive homes," Zillow said in its latest home value report.
Renters, meanwhile, are spending 29.9 percent of their monthly income on their living space as rent growth outpaces home prices nationally. According to a recent forecast from the company, rental costs are expected to rise 3.5 percent annually in 2015 compared to growth of 2.5 percent for home values.
While continually rising rents might be expected to drive more Americans into purchasing homes, they're also making it difficult for renters to save up for a down payment. In a recent survey, Freddie Mac found that 61 percent of current renters don't expect to buy a home in the next three years, with half of respondents saying they can't afford to save for the initial costs.
"Despite rising home values, homeownership remains very accessible for buyers that can scrape together a down payment—even if that down payment is relatively modest—find a home to buy and secure financing," said Dr. Stan Humphries, chief economist at Zillow. "But what keeps me up at night is the fact that it still remains so difficult for so many potential buyers to make those particular stars align, largely because renting is so unaffordable these days."
While current conditions might be tough for the hopeful would-be homeowner, Humphries reiterated his belief that increased inventory and slowly loosening credit will create a more favorable market for buyers, giving renters incentive to take the big step into buying.
"Buying conditions are getting better every day, and in time the allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into homeownership," he said.