Analysis shows how hard it is for Phoenix renters to afford starter home

PHOENIX – It’s getting much harder for metro Phoenix renters to put away enough money for a down payment on a starter home, according to a new analysis.

The average Phoenix-area renter would need more than 10 years of saving 10% of earnings to afford a 20% down payment for a typical starter home, Zillow reported Thursday.

That’s more than three years longer than it would have taken five years ago, according to a press release from the real estate website.

Zillow defines a typical starter home as one at the median point in the bottom third of home prices. For Phoenix, it’s $270,560.

The 10-year timeframe is actually optimistic, because most renters can’t or don’t save 10% of their income. Zillow says the median rate is 2.4%, a pace that would accrue 20% down on a typical Valley starter home in about, gulp, 43 years.

“Without the equity from a previous home sale, first-time homebuyers face more challenges in coming up with a down payment,” Zillow economic data analyst Nicole Bachaud said in a press release.

“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.”

The savings part of home buying isn’t as daunting for those who can close a deal with a smaller down payment. To put away 10% down, it would take 5.1 years at 10% savings and more than 21 years at 2.4% savings. For 3% down, the time shrinks to 1.5 years at 10% savings and 6.4 years at 2.4%.

Putting down less than 20%, which Zillow says is the case for nearly two-thirds of first-time homebuyers, leads to a heftier monthly payment because of a larger loan amount, higher interest rates and additional costs such as private mortgage insurance. But it might still be worth it.

“The good news is that 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%,” Bachaud said.

“That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many.”

The situation is more challenging in Phoenix than it is nationally, on average, in part because of the Valley’s surging home values.

According to national figures from Zillow, a typical starter home costs $148,500. The average U.S. renter saving 10% of earnings could cover a 20% down payment in under 6.5 years, a year longer than it would have been five years ago.

But while the first-time home market is rough for Phoenix renters, it’s far worse for their neighbors to the west. At the median savings rate of 2.4%, it would take more than 10 years to put away enough money for just a 3% down payment in San Diego, Los Angeles or San Francisco.

And forget about stockpiling a 20% down payment by saving 2.4% in those three California cities, because it would take more than 70 years – if you live that long.

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