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by G. Steven Bray
Zillow reports that American renters are now paying 30.2% of their income for rent, the highest percentage in recorded data, which dates back to 1979. This is up almost 1% from last year and much higher than the long-term average of 24.4%. The 30% share is important because above this level economists say housing costs are unaffordable.
On the flip side, the Zillow report says that the average homeowner only spends 15.1% of their income on a housing payment. While that huge gap makes for wonderful marketing fodder, I think the number is questionable. The median home price is about $231,000, and the median income is about $53,000. Even if I grant Zillow that the average homebuyer is able to afford a 20% down payment, I still get a $900 principal and interest payment, which is more than 20% of the homebuyer’s income. And I haven’t even considered property taxes and insurance.
But all real estate is local. In Austin, for example, the median home price is $255k, and the median income is a bit over $52k. Assuming a homebuyer has a 20% down payment, she’s looking at a total housing payment that is more than 35% of her income. The average rent payment in Austin is $1445, which is 33% of her income.
So, while rising rents are a strong incentive for renters to consider buying a home, you may not be able to use a lower housing payment as a deal clincher.