Despite the recent rise in median home prices, a report released by Zillow August 21, 2014 found that buying a home in the Greater Boston Area was still more affordable in July than renting.
In the Boston area, median home prices were up 6.1 percent year over year, according to Zillow, while rent prices were up 4.8 percent, to an average of $2,091 per month. With an average rent exceeding $2,000 and interest rates still less than 5 percent, more tenants certainly will consider becoming Boston home buyers.
Nationally, U.S. home values rose 6.5 percent year-over-year in July, according to the Zillow Real Estate Market Report, while national rents rose 2.8 percent in July compared to July 2013.
Although housing costs more in Boston than other parts of the country, home buyers had to use less of their income than prior to the real estate bubble bursting. To afford a median-priced Boston area home, a home buyer with a median income ($74,505) would have to pay 23 percent of their pay toward their mortgage payment, better than the historic average of 27.8. On the other hand, renters were worse off, with a median income Boston renter required to put 33.5 of their pay toward rent to afford a median-priced apartment, far above the historic average of 25.4 percent.
Zillow warned that if interest rates rise, there would be a significant shift in affordability. For example, if mortgage interest rates rose to 5 percent, 13 of the nation's top 100 largest metropolitan areas will be unaffordable for home buyers, as compared with six such areas today. With 6 percent mortgage interest rates, the number of unaffordable metropolitan areas will almost double to 24.
Home buyers in Massachusetts do have some first-time home buyer mortgage loan programs that assist in keeping the cost of buying a home down.