Renters Feelings About Buying Diminish As Rates Climb Amid Tight Inventory

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The Editors's picture
Renters Feelings About Buying Diminish As Rates Climb Amid Tight Inventory

There should be a continued good pool of renters for landlords as new research shows many renters feel now is not a good time to buy a home, as interest rates climb and the tight supply of homes for sale continues.

Renters and rent payments are going to continue to grow as renters spent a record $485.6 billion in 2017, an increase of $4.9 billion from 2016, according to Zillow research.

New consumer findings from the National Association of Realtors (NAR) show that while a growing share of households feel more confident about the economy and their financial situation, those positive feelings are not translating to positive views that now is a good time to buy a home.

That's according to NAR's first quarter Housing Opportunities and Market Experience (HOME) survey, which also found that homeowners are increasingly positive about selling, and non-homeowners have anxieties about saving for a down payment and qualifying for a mortgage.

Renters feelings about buying diminish

Optimism that now is a good time to buy a home is at its lowest share in the past two years at 68 percent down from 72 percent last quarter.

Among renters, feelings about buying are further diminished down to 55 percent from  60 percent last quarter. Those most optimistic about buying are homeowners, older respondents and those living in the more affordable Midwest and South regions.

 "The critical shortage of listings in most markets continues to spark a hike in home prices that is not easy for many buyers – and especially first-time buyers – to overcome," NAR Chief Economist Lawrence Yun said in the release. "Adding more fuel to the affordability fire is the fact that mortgage rates have shot up to a four-year high in just a few months. Many house hunters are telling Realtors® that they are dispirited by the stiff competition for the short number of listings they can afford."

"There's no question that a majority of homeowners have amassed considerable equity gains since the downturn. Home prices have grown a cumulative 48 percent since 2011 and are up 5.9 percent through the first two months of this year," said Yun. "Supply conditions would improve measurably, and ultimately lead to more sales, if a growing number of homeowners finally decide that this spring is the time to list their home for sale." 

Consumers feeling more upbeat about the economy and their financial situation

Although optimism was a tad higher a year ago (62 percent), more households in the first quarter of this year (60 percent) believe the economy is improving compared to the fourth quarter of 2017 (52 percent). Homeowners, residents from the South and those from rural areas were the most optimistic about the direction of the economy.

Stronger economic confidence this quarter also led to households having improved feelings about their financial situation. The HOME survey's monthly Personal Financial Outlook Index2, showing respondents' confidence that their financial situation will be better in six months, rose from 59.1 in December to 63.8 in March. A year ago, the index was slightly lower (62.6).  

"The jump in optimism to start the year can be attributed to the robust job creation in most of the country, as well as the larger paychecks households are enjoying because of faster wage growth and the recent tax cuts," said Yun. "These three positives should further ignite buyer demand. However, several metro areas with the healthiest labor markets also have the most severe supply and affordability pressures. This troublesome reality is what's dampening moods and keeping many would-be buyers at bay."

More households headed by renters than at any point in 50 years

Renters continue to grow as heads of households

A decade after the housing bust upended the lives of millions of Americans, more U.S. households are headed by renters than at any point since at least 1965, according to a Pew Research Center analysis of Census Bureau housing data.

While recent trend pieces point to historical data suggesting an upcoming stagnation in the apartment market, with nearly 39 million Americans (1 out of every 8) calling apartments home, it’s becoming increasingly difficult to refute the demand for apartments.

However, the increase in U.S. renters over the past decade does not necessarily mean that homeownership is undesirable to today’s renters. Indeed, in a 2016 Pew Research Center survey, 72% of renters said they would like to buy a house at some point. About two-thirds of renters in the same survey (65%) said they currently rent as a result of circumstances, compared with 32% who said they rent as a matter of choice. When asked about the specific reasons why they rent, a majority of renters, especially nonwhites, cited financial reasons.

Income, debt and anxiety hold back renters from buying

In this quarter's survey, non-homeowners were also asked about the barriers preventing them from saving for a down payment. Limited income (47 percent), student loan debt (30 percent), and rising rents (28 percent) were the top three obstacles cited, followed by health and medical costs (14 percent). Only 14 percent also said that nothing was holding them back from saving for a down payment.

Non-homeowners were also asked for the potential reasons why qualifying for a mortgage would be difficult. Income uncertainty (45 percent), a low credit score (34 percent) and too much debt (26 percent) were mentioned the most. Twenty-nine percent said they lacked the financial knowledge or did not know the first step needed to qualify.

About NAR's HOME survey

In January through early March, a sample of U.S. households was surveyed via random-digit dial, including a mix of cell phones and land lines. The survey was conducted by an established survey research firm, TechnoMetrica Market Intelligence. Each month approximately 900 qualified households responded to the survey. The data was compiled for this report and a total of 2,702 household responses are represented.

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