Rents Are Rising, But It’s Not Turning Renters Into Buyers

You would think steadily rising rents would lead to a surge in home-buying activity, as more and more renters moved up to homeownership. As it turns out, that’s not happening. A recent survey of more than 2,000 renters revealed that rising rental costs are not motivating renters to buy a house.

The survey was conducted by Harris Poll on behalf of Freddie Mac, the government-sponsored corporation that buys and sells mortgage securities. The majority of renters who were surveyed said they plan to stay put and continue renting, despite rising rent costs across the U.S.

Renters Reluctant to Become Home Buyers?

According to David Brickman, an executive vice president with Freddie Mac, paying a bit more for an apartment isn’t a big deal for many folks. At least, it’s not a compelling enough reason to buy a house.

“We’ve found that rising rents do not appear to be playing a significant role in motivating renters to buy a home,” said Brickman. “This contradicts what some in the housing market think as they expect more renters ought to be actively looking to purchase a home.”

Brickman and his team feel that rising rents are a sign of increased demand in the rental market, but not necessarily an indicator that home purchases will increase going forward.

With improvements in the job market and the broader economy, we are seeing an increased number of renter households. This has led to a surge in demand for rental units. According to a recent analysis, an estimated 440,000 new rental units are needed to meet the rising demand for apartments and houses for rent.

Rents Rising in 2015

People are paying more for apartments these days. Rents in the U.S. rose 3.6% in 2014, according to government data. They are expected to rise 3.4% above inflation during the course of 2015. The Census Bureau reports that more than one-third (38%) of U.S. households now rent their homes.

Rent increases have also become more common in recent years. More than one-third (38%) of renters who have resided in their homes for at least two years have experienced a rent increase within the last two years. In contrast, only 6% of this group experienced a decrease in their rental costs.

So, why aren’t more of these renters buying homes to escape these rising costs? Affordability has a lot to do with it. Of the survey respondents who experienced a rent hike in the last two years, the vast majority of them (70%) said they would like to buy a house but can’t afford to right now.

Apartment Perks: No Maintenance, More Flexibility

There are some good reasons to rent a home versus buying. (Take it from someone who has been a homeowner and is now a renter.) In some cases, it’s an easy decision to make. People who move around a lot, and those who detest the idea of property maintenance, are generally better off renting.

The Freddie Mac / Harris Poll survey asked renters what they liked about renting. The most commonly cited benefits were:

  • Freedom from home maintenance
  • More flexibility over where you live
  • Protection against declines in home prices

Indeed, renters typically have little to no maintenance to worry about. It’s easier to pack up and move as well, since there is no home to be sold or mortgage loan to be paid off. Concerns over home-price declines, on the other hand, may become less of a factor going forward, since prices are now rising in most U.S. cities.