Housing Affordability in Today's Largest Cities

We continue our real estate research with a study on metropolitan affordability in the rental and mortgage markets. Once again, we tap into Zillow Group’s wealth of data and use a data set that includes mortgage affordability, rental affordability, and price-to-income ratios for the five most populous US cities with a comparison to the national median. Incidentally, those five cities represented 17.5% of the national population in 2015. Zillow data is quarterly from 1979 through the third quarter of this year. Income data is monthly and sourced from the Census Bureau through 2015.

It is no secret that it is more affordable to buy a home than rent - i.e. mortgage payments are typically less than rent payments for a similar unit or home. Mortgage and rental affordability are defined as the percentage of income spent on each, respectively. In this first chart, we compare mortgage affordability with rental affordability since 1979. You’ll notice the percentage of income that renters spend has increased by 20%, whereas the percentage of income owners spend has gone down by 46%, both since 1979. Not surprisingly, mortgage affordability is highly correlated with the 30-year mortgage rate, which explains the large improvement in affordability since the late 1970s.

Let’s look at rental affordability in the top 5 most populous cities over the past 37 years. Notice that renters in Los Angeles spend a whopping 48% of their income on rent and for New Yorkers, that number is 41% of their income on rent.