Nearly 40% Of Renters Believe They’ll Never Own A Home

In a recent nationwide survey, nearly 40% of renters expressed doubt about their prospects of ever becoming homeowners, a significant increase of almost 25% compared to less than a year ago.

The survey revealed that escalating home prices and mortgage rates are major deterrents for Americans considering home ownership. According to a report from Redfin, affordability concerns stand out as the primary reason cited by renters for their skepticism about owning a home. This sentiment was shared among 1,000 renters surveyed across the country.

Daryl Fairweather, the chief economist at Redfin, commented on the findings, noting that while housing costs remain high overall, renting appears to be a more financially viable option for many Americans at present. This is particularly true for those who have never owned a home and lack the ability to leverage equity from a previous property sale.

"Although owning a home is generally seen as a wise long-term investment, the hurdles and initial expenses associated with purchasing one are considerably greater compared to renting. Buying a home typically necessitates a substantial down payment and securing approval for a mortgage, which pose significant challenges for many individuals, especially given the current landscape where the average down payment hovers around $60,000 and mortgage obligations are exorbitant. The sheer financial burden of acquiring a home is diminishing the allure of the American Dream of homeownership."

Challenges to Achieving Homeownership

A survey conducted by Qualtrics revealed that 38% of renters in the United States feel uncertain about their prospects of ever owning a home, a notable increase from 27% reported in a Redfin survey conducted in March 2023. The survey identified several common obstacles cited by renters for their reluctance to purchase a home:

1. High housing prices, deemed unaffordable by 44% of respondents.
2. Difficulty in saving for a down payment, cited by 35% of participants.
3. Concerns about affording mortgage payments, mentioned by 33% of renters.
4. High mortgage interest rates, a concern for 32% of respondents.

A recent analysis by Redfin found that first-time homebuyers now need an annual income of approximately $76,000 to afford a typical starter home, marking an 8% increase from the previous year and nearly doubling from pre-pandemic levels. Home prices have surged by over 40% since 2019 due to the intense demand sparked by the pandemic and a shortage of available homes for sale. Although the current average 30-year fixed mortgage rate of 6.82% is lower than the peak of nearly 8% recorded last October, it remains more than twice the historically low rates seen in 2020.

Over the past year, home prices have risen by 7%, while monthly mortgage payments have increased by over 10%. These significant cost escalations help elucidate why renters today are more inclined than they were previously to express doubts about their ability to own a home in the foreseeable future, as reported by Redfin. Furthermore, the survey revealed that many renters are already grappling with the burden of monthly housing expenses, with nearly a quarter indicating regular struggles to afford their housing payments, and 45% acknowledging occasional difficulties.

Choosing to rent

The Redfin survey further uncovered that 14% of renters have no inclination towards purchasing a home.

Insights from Entrata, a property management software company based in Utah, revealed earlier this month that a growing number of individuals are choosing to rent out of preference rather than financial necessity. Remarkably, one in every five renters anticipates remaining in the rental market for the entirety of their lives.

"In accordance with the findings outlined in the report titled 'The New American Dream,' there is a notable shift occurring where an increasing number of individuals are opting to rent by choice, irrespective of their financial circumstances. While some individuals are compelled to rent due to economic constraints, the survey suggests that more people are actively choosing renting as their preferred lifestyle.

The survey, conducted by Entrata among 2,000 renters residing in large apartment communities nationwide in January, revealed that 66% of respondents believe that renting aligns better with their current lifestyle compared to homeownership. Additionally, a third of respondents indicated that they have the financial capability to purchase a home meeting their needs by 2024 but consciously choose not to do so.

Interestingly, the survey also highlighted that 41% of renters do not associate homeownership with the quintessential American Dream, indicating a shifting perspective on traditional notions of success and fulfillment."

Homeowners 

According to the Redfin survey, Gen Z renters exhibit the highest optimism about their future homeownership prospects, with only 8% expressing doubt that they will ever own a house. This contrasts starkly with 22% of millennials, 40% of Gen Xers, and 81% of baby boomers who harbor reservations about homeownership.

Redfin suggests that this optimism among Gen Z renters can be attributed to their stage in life, as adult Gen Zers (aged 18-27) are still in the early phases of their careers, affording them ample time to transition into homeownership. Conversely, older generations, particularly baby boomers, may have already experienced homeownership and have opted for the convenience and low-maintenance lifestyle offered by renting, or they may be constrained by fixed incomes.

Entrata's data further indicates that renters are increasingly seeking to relieve themselves of the responsibilities associated with homeownership, such as yard work and maintenance. Additionally, a significant portion of renters previously owned a home but found it unsuitable for their lifestyle, as noted in the report. The top reasons cited by survey respondents for returning to renting include relocation, divorces, or breakups, with variations observed across different age groups. For instance, nearly half of millennials began renting due to relocation, while divorces or breakups prompted 38% of Gen Xers and 32% of baby boomers to transition back to renting.