April 24, 2024 2:49 PM
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Renters Feel Bad About Their Finances, But It’s Cheaper Than Owning – The Mortgage Note

Compared to homeowners, renters feel bad about their finances, but in most of the country renting is the more affordable option right now.

A recent Axios Vibes survey by The Harris Poll shows that homeowners are nearly twice as likely to say they are getting ahead financially when compared to renters. 57% of renters and 29% of homeowners described their financial situation as “poor.”

According to Emily Peck, a markets correspondent at Axios, part of the problem is that the median asking rent in the U.S. is up 40% from the first quarter of 2020. With average hourly earnings rising only 20% during the same time period, wages did not keep up with costs.

Homeowners were in a different boat. The value of their homes rose dramatically and in many cases, their monthly mortgage payments did not.

Even though renters report angst about their financial situation, median three-bedroom rents are more affordable than owning a similarly sized home in nearly 90% of local markets around the nation. This is according to ATTOM’s 2024 Rental Affordability Report.

The report shows that both renting and owning continue to pose significant financial burdens for average workers, consuming more than one-third of their wages in the vast majority of county-level housing markets. But median rental rates require a smaller portion of wages in 296, or 88%, of the 338 U.S. counties with enough data to analyze.

The analysis for this report incorporated 2024 rental prices and 2023 home prices, collected from ATTOM’s nationwide property database, as well as publicly recorded sales deed data licensed by ATTOM. Those two data sources were combined with average wage figures from the Bureau of Labor Statistics.

“Rents consume a smaller portion of average local wages than major homeownership expenses (mortgage payments, property taxes, and insurance) in most local housing markets around the country,” said Rob Barber, CEO of ATTOM. “This is not to say either is easy for average wage earners.”

Barber said renting typically eats up at least half of average earnings in about 20% of the local markets they reviewed while ownership requires that much in nearly 60% of them.

This could continue to be the case in 2024 even though average rents have increased faster than median home prices around the country over the past year.

“Of course, if home values continue to stay flat, as they did over the second half of 2023, and rents keep rising, the pendulum could shift back to the scenario from a few years ago, when home ownership was less of a financial stretch,” said Barber.

Whether or not that will happen is highly unpredictable.

“If recent declines in home mortgage rates continue, the supply of homes for sale around the country remains tight, and employment remains strong, home prices could easily keep rising,” said Barber. “That likely would force additional households with limited resources to turn to rentals, boosting demand and raising rents as well. With both rising, current affordability patterns would likely remain in place.”

Wages will also come into play. Barber said though they have been rising slower than rents, they are increasing at a faster pace than home prices.

Barber said the most affordable homeownership markets right now are in the Midwest and South. About 80% of the counties ATTOM looked at in the Midwest and almost 50% in the South have median home prices under $325,000. The same is true in only about 30% of the Northeast and none of the areas analyzed in the West.

Barber said homeownership costs require less than a third of earnings in about 40% of counties they analyzed in the Midwest and 11% in the South, versus 4% in the Northeast and none in the West.

There is help for first-time homebuyers throughout the country. In Philadelphia, the city’s Division of Housing and Community Development, in conjunction with its community development partner PHDC, has programs for these buyers.

“Our Philly First Home settlement/downpayment assistance grant offers $10K or 6% of the purchase price to qualified homeowners that help make homeownership a reality,” said Jamila Davis, public information officer for DPD and PHDC. “The Turn the Key program also offers settlement/downpayment assistance, and makes ownership of a new construction home possible.”

Turn the Key homes are being built on city-owned parcels.

“Because we own the asset and have a way to make the homes affordable to first-time homebuyers, we are able to set the sales prices so that the monthly mortgage payments are affordable and we go to great lengths to partner with 12 lending institutions that are willing to provide favorable rates and leverage their own products to lower the monthly payments even further,” Davis added.

People who rent should be relieved to hear that it’s unlikely the price jumps that took place during the pandemic will continue.

Rick Sharga, President & CEO of CJ Patrick Company, said the increase in asking rents, which peaked at a 15% annual increase in 2022, declined rapidly in 2023 and even went negative in some markets.

Sharga pointed out that asking rents are usually higher than actual rents and added that landlords will likely be challenged to raise rents very much this year, since hundreds of thousands of new rental units either hit the market in 2023 or are under construction now and will be ready for occupancy soon.

This increased supply, without a corresponding increase in demand, will keep rental rates from escalating, he said.

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