If you rent an apartment, you might have noticed that you’re shelling out more in monthly payments than your home-owning neighbor, friend or coworker.
That’s because, according to Zillow, buying a home is now more affordable than renting in urban clusters. The company’s third-quarter 2014 Affordability Index estimates that median-income buyers can expect to spend about 15 percent of their income on a mortgage payment today, compared to renters shelling out about 30 percent.
While interest rates remain low and home value appreciation continues to moderate, buying a home will continue to be more affordable than it has been in the past. Apartment dwellers, meanwhile, continue to struggle. Rents “are historically unaffordable in the largest 35 metro areas,” including Miami, San Francisco, New York, San Jose and Los Angeles.
Although these numbers are of mild concern to multi-family landlords and developers, they are by no means cause for panic, according to real estate analysts.
Underwriting standards are still unusually tight to obtain, making it difficult for Millennials facing college loan payoffs or other expenses to qualify for a mortgage.
The apartment market is on track to keep thriving in coming years, and here’s why:
Financing is still an issue for younger consumers, especially since a big chunk of their income goes toward rent, making it difficult to save up for a house.
“You can only spend a certain amount of your income on debt service,” said Richard Green, director of the University of Southern California’s Lusk Center for Real Estate. “So even if you’re spending only 15 percent of your income on your house, if you’re spending another 10 percent on student loans and 5 percent on your car, the lender might not like you.”