Housing Costs Have Risen Faster for Renters, Who Remain More “Cost Burdened” Than Owners

For Buyers, Lower Mortgage Rates Since the Housing Bust Softened the Blow of Rising Home Prices

By Andrew LePage Housing Affordability, Real Estate

As home prices soared in recent years, homebuyers’ struggles with worsening affordability understandably garnered a lot of attention. 

But affordability isn’t just an ownership problem. Some data indicate that since the last housing boom homebuyers overall have fared better than renters.

Nationally since 2005, the monthly cost to rent a single-family home[1] has increased significantly, while the monthly principal-and-interest mortgage payment that homebuyers face is still slightly lower, based on a comparison of the CoreLogic Single-Family Rental Index (SFRI)[2] to a statistical construct we call the “typical mortgage payment.” The latter is a monthly principal-and-interest mortgage payment based on the monthly U.S. median home sale price[3].

CoreLogic’s national rent index was up 36 percent in December 2018 compared with December 2005, while the typical mortgage payment was down 4 percent over that period. Why the difference? It’s mainly because mortgage rates back in December 2005 were significantly higher, averaging 6.3 percent for a fixed-rate 30-year loan[4], compared with 4.6 percent in December 2018. (The national median sale price in December 2005 – $190,000 – was lower than the $220,305 median in December 2018, but because of higher mortgage rates in 2005 the typical monthly mortgage payment was slightly higher back then – $941 – compared with $904 in December 2018).

Single-Family Rent vs. Typical Mortgage Payment

Of a dozen large metro areas evaluated nationally (Figure 1), seven logged rent increases between about 27 and 61 percent between December 2005 and December 2018, and declines in the typical mortgage payment ranging from about 3 percent to 24 percent. The other five metros logged gains in both rents and the typical mortgage payment over that period, but in all cases the rent increases were greater.

Single Family Rent Index

However, when looking at just the past year the trend is much different (Figure 2). The national rent index indicates that rents rose 3.1 percent year over year in December 2018, while the typical monthly mortgage payment that homebuyers committed to rose 12.1 percent. That’s because while rent growth eased last year homebuyers faced the double-whammy of rising prices and mortgage rates, pushing the monthly principal-and-interest mortgage payment up faster than home prices. All of the 12 metro areas analyzed showed the same trend, where the typical mortgage payment rose faster than rents when comparing December 2018 with a year earlier.

The most recent U.S. Census Bureau data[5] show the share of income that owners and renters put toward shelter also suggests owners have fared better than renters over the past decade. Nationwide in 2017, about 27 percent of mortgaged homeowners were “cost burdened,” meaning 30 percent or more of their income went toward the monthly mortgage payment and other owner expenses. That was down about 10 percentage points from 2007. Forty-six percent of renters nationally were cost burdened in 2017, up a tad from 45.6 percent in 2007. So the share of cost-burden renters remained fairly steady over that decade while the share of cost-burdened owners dropped significantly. Two factors help explain the trend: First, owners were able to lower their monthly payments by refinancing – sometimes repeatedly – as mortgage rates declined over the period. In December 2007 the average rate for a fixed-rate 30-year mortgage was 6.1 percent, compared with about 4.0 percent in December 2017[6]. Second, during the foreclosure crisis starting in 2007-2008 some borrowers with high cost burdens lost their homes to foreclosure, hence aren’t represented in the 2017 data because they are no longer homeowners.

The Census Bureau data show that the estimated number of cost-burdened, owner-occupied homes with a mortgage fell 32 percent over the 10-year period, from 19.4 million in 2007 to 13.2 million in 2017. Over the same period the estimated number of cost-burdened, renter-occupied homes rose nearly 19 percent, from 16.8 million in 2007 to 19.9 million in 2017.

The same trend played out in a dozen major cities and counties examined. The share of mortgaged homeowners who were cost burdened in 2017 was down in all of the areas compared with 2007, with the declines ranging from about 6 to nearly 19 percentage points. The areas logged only small changes, either up or down, in the share of cost-burdened renters over that 10-year period, with two areas logging gains of around two percentage points and the others declines of between 0.3 and 4 percentage points. 

Shu Chen contributed to this blog.

[1] The dynamics of the single-family and multi-family rental markets could be different.

[2] The SFRI index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time. Index based on the contract rent.

[3] The “typical mortgage payment” is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20 percent down payment. It does not include taxes, insurance, HOA or condo fees.

[4] Based on Freddie Mac’s average rate for a fixed-rate 30-year loan.

[5] American Community Survey “1-Year Estimates” for percent of renter-occupied units putting 30 percent or more of income toward rent and utilities, and for owner-occupied units putting 30 percent or more of income toward the mortgage, real estate taxes, various insurances, utilities and other selected owner expenses.

[6] Based on Freddie Mac’s average rate for a fixed-rate 30-year loan.

© 2019 CoreLogic, Inc. All rights reserved.