Rents Hit New Highs As First-Time Homebuyers Struggle To Save For Down Payments

The U.S. housing market has become somewhat more expensive, as two new data reports find apartment rents climbing at their fastest pace in two decades while new homebuyers find it harder to save for a down payment.

The Problem For Renters: Effective asking rents recorded a 2% uptick in June, according to new data from RealPage Inc. As a result, year-over-year rent prices increased by 6.3%, the greatest 12-month hike since early 2001.

The average monthly rent in the U.S. during June was $1,513, which is the first time that level topped the $1,500 mark.

"Annual growth in effective asking rents comes in at more than 10% in 53 of the country's 150 largest metros, including 13 spots where year-over-year price increases are at 15% or more," said RealPage Chief Economist Greg Willett. "Relatively small Boise, Idaho, posts the most aggressive annual rent growth in that 150-metro group of markets, with pricing there up 21.2%."

Willett added that among the metro areas with at least 100,000 apartment units, Phoenix recorded the greatest annual rent growth with a 19.2% spike, followed by Las Vegas rents with a 16.7% increase.

Smaller metro markets recorded the highest level of apartment occupancy rates due to a lack of new construction.

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The Problem For New Homebuyers: Separately, new data from Zillow Group Inc Z ZG found it is becoming tougher for many renters to save for a down payment to transition into homeownership.

Zillow determined if an average renter household saves 10% of its income, it would take about six years and five months to save enough for a 20% down payment on a typical starter home priced at roughly about $148,500 — one year longer than it would have taken five years ago.

But that is predicated on being able to locate an affordable-priced property.

Zillow added that homes priced in the bottom third of a metro area's housing stock — the range traditionally considered for starter homes aimed at first-time buyers — grew faster in May than the typical mid-market home in 42 of the 50 largest metro areas. Those who are just starting to save may need to factor in this rapid pace of home value growth.

Furthermore, Zillow forecasted a 14.9% appreciation over the next year, which would layer an additional $369 per month into the down payment savings process.

"Without the equity from a previous home sale, first-time homebuyers face more challenges in coming up with a down payment," says Zillow economic data analyst Nicole Bachaud. "In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20% down payment can feel out of reach."

However, Bachaud noted "buyers who want to take advantage of today's low mortgage rates can do so without putting a full 20% down — most conventional mortgages allow as little as 3% to 5%. That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many."

(Illustration: Jhonatan_Perez / Pixabay.)