Buyers Hedge Their Bets as Rent Competes With Ownership Costs
Cautious home buyers in some markets are hunting for homes they can afford, while keeping a close eye on less expensive rental opportunities. A new Zillow report on "dual shoppers" shows wide variations in the required monthly payments across options within the same metro.
Nationwide, monthly mortgage payments are $415 higher than rent. But in some metros, the differences are stratospheric. The would-be home buyer in San Jose can expect to pay a median of $3,438 more on a mortgage than for rent, even though the house has just 145 more square feet than the median rental.
Other metros in California where the median gap between mortgages and rent is very high include Los Angeles ($2,174), San Francisco ($2,212) and San Diego ($1,724). The gap is greater in Seattle ($1,292) than in New York ($1,160) or Boston ($1,058). And the house in Boston offers more space (295 square feet) than a rental compared to either New York (250 square feet) or Seattle (199 square feet).
In some other metros, the dual shopper may be able to squeeze out the amount needed for a mortgage payment on a larger house than they could afford to rent. For example, in Houston, the difference is only $122 for a home with 304 more square feet; in St. Louis and Birmingham, the gap is $61, in Indianapolis, $36 and in Cleveland, $19. In a few other cities, the median mortgage payment costs less than rent, as in Detroit (-$56), Cincinnati (-$28) and Buffalo (-$16).
"Affordability pressures are blurring the line between renting and buying," Zillow noted.
Whether thinking of buying or renting, dual shoppers tend to want similar types of homes, especially three-bedrooms, Zillow reported. "Rather than changing what they want in a home, many are straddling the fence between renting and buying, deciding which option best fits their budget and long-term goals," it said.
The rentals dual shoppers consider are on average 284 square feet smaller than comparable houses.
"Even so, these rental properties often provide higher value per square foot — based on Zestimate comparisons — suggesting they may feature newer finishes, updated amenities or more efficient layouts," the report said.
Zillow added that about 8% of the would-be buyers on its site are dual shoppers. In Los Angeles, the share is 12%, in San Diego 10.8% and in San Francisco, 10.1%. In each market, the median household would need to spend about two-thirds of its income on a monthly mortgage with a 20% downpayment. The burden on renters is about half of their income, about a third.
New York City is described as a major outlier, with 29.9% of home shoppers also considering rentals – 3.8 times the national share and four times the share for the broader New York metro area.
Source: GlobeSt/ALM