RealtyTrac, a source for comprehensive housing data, released a Residential Rental Property Analysis for properties purchased in the first quarter of 2015, which found that the monthly house payment on a median-priced home is more affordable than the monthly fair market rent on a three-bedroom property in 76 percent of the U.S. counties included in the analysis.
The report also ranked the markets with the best — and worst — potential returns on residential rental properties from a real estate investor perspective along with the most affordable — and least affordable — markets for renting from a renter perspective.
The analysis included 461 counties nationwide with a population of at least 100,000 and sufficient home price, income and rental data. The combined population in the 461 counties analyzed was 217 million. On average across all 461 counties, fair market rents as set by the U.S. Department of Housing and Urban Development represented 28 percent of the estimated median household income, while monthly house payments on a median-priced home — with a 10 percent down payment and including property taxes, home insurance and mortgage insurance — represented 24 percent of the estimated median income.
“From a purely affordability standpoint, renters who have saved enough to make a 10 percent down payment are better off buying in the majority of markets across the country,” RealtyTrac Vice President Daren Blomquist said. “But factors other than affordability are keeping many renters from becoming buyers, a reality that means real estate investors buying residential properties as rentals still have the opportunity to make strong returns in many markets across the country.
“Also keep in mind that in some markets buying may be more affordable than renting, but that doesn’t mean buying is truly affordable by traditional standards,” Blomquist continued. “In those markets renters are stuck behind a rock and hard place when it comes to deciding whether to try to buy or continue renting.”
56 markets with most favorable buying conditions
There were 351 counties out of the 461 analyzed (76 percent) where house payments on a median-priced home in the first quarter of 2015 were lower than fair market rents on three-bedroom homes.
Among these 351 counties, there were 56 counties where home prices rose at least 7 percent compared with a year ago and wages rose at least 3 percent annually — additional factors that could make owning a home more attractive than renting. Wages were from the most recent weekly wage data available from the Bureau of Labor Statistics, the third quarter of 2014.
Among the 56 counties with most favorable conditions for buying, the most affordable for buying were Bay County, Michigan in the Bay City metro area (11 percent of median income to make house payments on a median priced-home); Fayette County, Pennsylvania (11 percent) and Beaver County, Pennsylvania (14 percent), both in the Pittsburgh metro area; Tazewell County, Illinois in the Peoria metro area (14 percent); and Butler County, Ohio in the Cincinnati metro area (14 percent).
“As wage growth continues to stagnate, those consumers choosing to rent will see more and more of their net wages being devoted to increased housing costs in the future,” Mahon added.