The entry into homeownership is proving to be more challenging for renters, many of whom are spending a large portion of their incomes on monthly rents.
The typical homeowner earns about 85% more than the typical renter, according to new research from the National Association of Realtors®.
It found that smaller and midsized metros show larger income gaps than more expensive coastal markets, but there’s a good reason.
“Surprisingly, the largest gaps are not in the most expensive markets but in smaller metros and college towns, where renter incomes are pulled down by a larger share of students and young workers,” Nadia Evangelou, principal economist at NAR and author of the research, tells Realtor.com®.
Evangelou found that people with high incomes live in the most expensive housing markets in the U.S.
San Jose (median list price: $1,349,975), San Francisco ($907,000), Washington, DC ($550,000), Boston ($799,000), and Seattle ($754,950) are among the costliest to live. The February national median list price is $403,450, according to Realtor.com data.
In San Jose, the typical homeowner earns about $209,000 a year, compared with renters who earn about $123,000, according to NAR. In San Francisco and DC, homeowner incomes are also into the six figures.
Largest income gaps
NAR’s report reveals the largest income gaps aren’t in the big cities but rather they’re prevalent in college towns.
“College towns often show lower renter incomes because many renters are students or young workers, whose lower earnings bring down the median renter income,” Evangelou says. “Homeowners in those markets tend to be more established households, which makes the gap larger.”
In Iowa City, IA, the income gap is around 195%. In Champaign-Urbana, IL, the gap is about 191%. That’s because of the large student populations that make up a majority of renters. Homeowners in these areas tend to be older and professionally established, while a renter’s income brings down the numbers.
Other larger college towns also reflect this trend. NAR found that midsized metros highlight the large income gaps. Springfield, MA, homeowners earn about 171% more than renters.
In Bloomington, IN, the difference is about 167%, while in Ann Arbor, MI, the gap is more than 160%.
“It definitely varies by market, but renters typically earn much less than homeowners. In our analysis, the typical homeowner earns about 85% more than the typical renter, which highlights how difficult the transition to homeownership can be,” adds Evangelou.
“At the same time, the majority of renters spend more than 30% of their income on rent, which makes it harder to save for a down payment. These financial hurdles are one reason many renters are buying homes later in life.”
Smallest incomes gaps
On the flip side, smaller incomes gaps can be found in popular retirement metros and in Sun Belt markets.
The report shows that the smallest gaps are in Punta Gorda, FL, where homeowners earn only about 19% more than renters.
It’s similar in Ocala, FL, where the difference is about 36%. For Cape Coral, FL, it’s a 41% income gap between homeowners and renters.