Starter home prices are growing almost seven times faster than renter incomes, according to Zillow, which makes saving for a down payment even more challenging for first-time homebuyers.
If an average renter household saves 10 percent of his or her income, it would take about six years and five months to save enough for a 20 percent down payment on today’s typical starter home, worth about $148,500. That’s a year longer than it would have taken five years ago, according to a recent Zillow analysis.
“Without the equity from a previous home sale, first-time homebuyers face more challenges in coming up with a down payment,” Zillow economic data analyst Nicole Bachaud said in a release. “In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20 percent down payment can feel out of reach. The good news is that buyers who want to take advantage of today’s low mortgage rates can do so without putting a full 20 percent down. Most conventional mortgages allow as little as 3 percent to 5 percent. That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many.”
Home prices continue to rise. As of May, homes priced in the bottom third of a given metro area were growing faster than the typical mid-market home in 42 of the 50 largest metro areas, according to Zillow’s analysis. The company forecasts a 14.9 percent home price appreciation over the next year, meaning renters would need to save an another $369 a month just to keep up.
Renters in California face the biggest hurdle. San Francisco home prices are so high that it would take 17 years and five months ― 11 years longer than the national average ― to save enough to put 20 percent down on a local starter home. It would take even longer in Los Angeles and San Diego. Among the top 50 metro areas, renters in Birmingham, Ala., Memphis and Detroit could save the fastest, according to Zillow.