July 29, 2017

Many local paychecks are being forked over to landlords

Almost half of Tri-Cities renters and 16% of homeowners are paying more than what housing experts say they can afford.

Compare that to what the Joint Center for Housing Studies at Harvard found in its current State of the Nation's Housing report.  That study found almost a third of U.S. residents pay more than can afford for housing and renters take the biggest hit.

A total of 24,095 Tri-Cities renters were in what's called "housing stressed" in the most recent Census report. “Housing stressed” means they were paying more than 30% of their income for housing.  

Harvard's study combined renters and owners and found nearly 39 million American households — 33% — are paying more than they can afford for their homes. One in four renters spends more than half their income on housing.

Benchmarking that with the Tri-Cities, the combined number of mortgaged households and renters paying 30% or more for housing is 52,763. That is 26% of the Tri-Cities occupied households. The Census does not list the number of renters paying more than half of their income on housing, but it does point out that almost 37% (19,079) pay 35% or more.

The 30% or less of pre-tax income standard measure of housing affordability has been in place since the United States National Housing Act of 1937 was passed.

According to Harvard's study, affordable housing is still difficult to find, for low-income as well as moderate-income renters. The typical renter in the U.S. earns $37,900 a year, which means a maximum rent of $950 a month would be considered affordable under the 30% rule. 

Benchmarking the 30% rule against local data, the median rent – the point where half of the rents are higher, and half are lower - is $635. However, the most common share is $500 t0 $999 a month. That is what 32,438 local renters pay. Another 6,275 pay anywhere from $1,000 to $3,000 a month.

The number of renters here is on the upswing as it is nationwide. A couple of years back apartment construction – sparked by new student housing – helped lift the Washington County/Johnson City housing market out of the recession. Last year the expansion of large apartment complex construction spread to Sullivan County. It was fueled by tax incentives with the intent of making Sullivan and its cities more competitive in efforts to attract new residents – especially Millennials.

Later this year the Census will release updated housing data, and from all early indications, it will show homeownership is on the upswing in the seven-county Tri-Cities region. The same is expected in the 11-county region monitored by the Northeast Tennessee Association of Realtors® Trends Report.  An increase is expected because beginning mid-2015 existing home sales took off like a rocket. The rate of growth has slowed a little this year, but if conditions continue as they are now total sales should equal the 2016 record.

This increase in sales came even as the local housing inventory got tighter and prices began to increase. And, at the half-year point that tighter market is not dampening demand for three simple reasons.

1 – If you are making the median household income and have a good down payment you have the purchasing power to buy a median-priced home with a mortgage payment that's competitive with the median rent.

2 – Our economy is adding jobs, and total wages are improving.

3 – Mortgage rates are still very favorable.

It makes sense for people to consider buying a home over renting. After all, a fixed-rate mortgage might last 15 or 30 years; rents have been rising above inflation for several consecutive years.  The local homeownership rate is over 70%, which proves East Tennesseans overwhelmingly believe owning a home is a good financial decision.

Realtors® know that homeownership is an investment in your future. From building personal wealth over the long term to fostering communities, strengthening social stability and driving the national economy, the value of home ownership is indisputable. There is a reason homeownership is called the American Dream. Home is where we make memories, build our futures and feel secure.

Eric Kistner is the 2017 president of the Northeast Tennessee Association of Realtors®. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and over 100 affiliates