Renters in the Greater Minneapolis area can expect to spend seven years saving for a 20 percent down payment on a home, according to a new HotPads® analysis released Friday. Nationally, the average is 6.5 years.
For a 3.5 percent down payment, Minneapolis renters spent one year and three months, which is close to the national average of one year and two months. Most home loans today, however, require 20 percent down payments.
The median home value in the U.S. is $216,000, which means a 20 percent down payment would be $43,200. If a renter making the median income saves 20 percent of their income each month—as financial experts recommend—they would have enough for a down payment in 77 months, which is nearly six and a half years.
Rising rental costs make it even harder for renters to save for a down payment. Nationally, the median rent is $1,480 per month, up 2.5 percent from a year ago. Experts recommend spending no more than 30 percent of income on housing expenses, but the typical U.S. renter spends 34 percent of their income on housing.
In the country’s most expensive housing markets like San Jose, Los Angeles and San Diego, it could take renters 22 years to save up a 20 percent down payment on the median home, assuming they can afford to set aside 20 percent of their income each month. Currently, renters in these markets are spending more than 55 percent of their income on rent.
Meanwhile, it will take a typical renter in Pittsburgh, Cleveland, Detroit and Indianapolis less than four and a half years to save for a 20 percent down payment. Renters in these markets spend 30 percent or less of their income on housing, making it easier for them to save.
Rising rents aren’t the only thing keeping renters out of the housing market. With home values continuously on the rise, saving for a 20 percent down payment becomes more difficult every month. U.S. home values rose 8 percent over the past year and are forecast to rise another 6.5 percent over the next 12 months.
Minneapolis shows up as the 19th most expensive place to buy a home, relative to how many years of income it takes to pay for it. HotPads finds the median home value is $260,700 and the average median annual income is $57,319. This means it takes on average the equivalent of 4.5 years of total annual income to pay off a home in the Twin Cities.
Using this viewpoint, the most expensive places to buy a home are San Jose, San Francisco, Los Angeles, San Diego and Seattle. In those markets, the number of years’ worth of annual income required to pay off a home are 16, 13.3, 11.3, 10.1 and 7.6. respectively.
The most affordable markets are Cleveland, Pittsburgh, Detroit, Indeanapolis and St. Louis, where the years to pay off a house are 2.8, 2.8, 2.9, 3.1, 3.2 and 3.2, respectively.
HotPads is a Zillow® Group-owned apartment and home search platform for renters in urban areas across the United States. For more information on the U.S. rental market, visit HotPads.com.