May 18, 2015

Tipping Point? Do Renters Become Homeowners When Rents Rise?

Are rising rents driving residents to homeownership? We wanted to know so we asked renters and found that the majority of them are not moving out.

Contrary to what some in the housing market think, we've found that rising rents do not appear to be playing a significant role in motivating renters to buy a home. While some expect more renters ought to be actively looking to purchase a home because rents are rising, we believe rising rents are primarily a sign of increased demand rather than a signal that home purchases will be increasing.

For example, based on our research and industry outlook, the market needs to deliver 440,000 new rental units a year to keep up with the current pace of demand.

In addition, through our research with Harris Poll, more than a third (38 percent) of renters surveyed who have lived in their home two years or more experienced a rent increase in the last two years, while 6 percent experienced a decrease.

Of those who experienced a rent increase, 70 percent agreed they would like to buy a home but cannot afford to at this point. Half (51 percent) agreed with the statement that they now have to put off their plans to purchase a home. In addition, 44 percent indicated they'd like to buy a home and have started looking.

Despite increases to their rent, 53 percent say they are making no changes to their spending plans and 46 percent 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 percent indicate they are spending less on essentials or nonessentials, 28 percent are contemplating getting a roommate or moving into a smaller rental property (28 percent). Three in ten (31 percent) renters whose rent increased in the past two years agreed that they like where they live, but can no longer afford the rent.

Additional details about the research are on the Freddie Mac website.

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