Conventional wisdom holds that rising rents drive people to homeownership, but new research from Freddie Mac suggests the conventional wisdom is all wrong.
Freddie Mac commissioned Harris Poll to survey more than 2,000 U.S. adults online in March 2015 to get their perceptions about renting.
“We’ve found that rising rents do not appear to be playing a significant role in motivating renters to buy a home,” said David Brickman, EVP of Freddie Mac Multifamily. “This contradicts what some in the housing market think as they expect more renters ought to be actively looking to purchase a home. We believe rising rents are primarily a sign of increased demand rather than a signal that home purchases will be increasing.”
Rents rose 3.6% in 2014 and are expected to rise 3.4% above inflation this year. More than one-third of U.S. households now rent their homes, and renters account for all net new household growth over the last several years, according to the U.S. Census Bureau.
“From a purely affordability standpoint, renters who have saved enough to make a 10% down payment are better off buying in the majority of markets across the country,” said Daren Blomquist, vice president at RealtyTrac. “But factors other than affordability are keeping many renters from becoming buyers, a reality that means real estate investors buying residential properties as rentals still have the opportunity to make strong returns in many markets across the country.
A third of renters are very satisfied with their rental experience and another 30% indicate they are moderately satisfied.
In addition, the top favorable factors for renting remained the same since the previous survey in August, with the strength of these favorable views rising slightly. The top favorable factors about renting are freedom from home maintenance, more flexibility over where you live and protection against declines in home prices.
Moreover, the results show some shared positive views across generations with no significant differences between Millennial, Generation X or Baby Boomer renters in their views that renting provides flexibility over where you live and protection against home price decline.
Despite increases to their rent, 53% say they are making no changes to their spending plans and 46% say they like where they live and will stay in their current place.
If renters are making adjustments due to increases in their rent, 61% indicate they are spending less on essentials or nonessentials, 28% are contemplating getting a roommate or moving into a smaller rental property (28%). Three in ten (31%) renters whose rent increased in the past two years agreed that they like where they live, but can no longer afford the rent.