Renters are much more likely than homeowners to be struggling to make ends meet, according to new research from CoreLogic.
The challenge faced by renters is that the monthly cost to rent a single-family home has risen enormously since 2005, while the monthly repayments and interest on a mortgage have actually dropped over the same period.
CoreLogic’s national rent index rose by 36 points from December 2005 to December 2018, while the typical mortgage payment fell by 4% over the same period.
The main reason for mortgage payments dropping is due to interest rates. According to CoreLogic, the 30-year fixed-rate mortgage averaged 6.3% in December 2005, but is now considerably lower at just 4.6% as of December 2018. And even though the median sales price back in 2005 was just $190,000 for a single-family home, compared to $220,305 in 2018, the typical monthly mortgage payment was still lower because of the lower mortgage rates today ($941 in 2005 versus $904 in December 2018), researchers said.
On the other hand, CoreLogic looked at around a dozen of the largest metro areas in the U.S. and found that rents increased by between 27% to 61% during that period. Mortgage payments declined by between 3% and 24% over the same period.
What it means is that homeowners are less “cost burdened” than renters. Around 27% of homeowners with a mortgage were considered to be cost burdened in 2017, which is defined as spending 30% or more of their income on housing expenses. But 46% of renters also fall into that category, CoreLogic said.
“The share of cost-burdened renters remained fairly steady over that decade while the share of cost-burdened owners dropped significantly,” the real estate data company said.
CoreLogic’s researchers believe some homeowners may have been able to reduce their monthly housing costs by refinancing in order to take advantage of lower interest rates.
At least, things may improve for renters as CoreLogic says prices are showing signs of slowing, while mortgage payments may inch upwards due to rising home prices.