Renters: Satisfied but Reaching for Homeownership

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FM Commentary

Renters: Satisfied but Reaching for Homeownership

Sarah ShahdadMany Americans view becoming a homeowner as an important milestone – a chance to put down roots, build wealth, and provide a safe place to raise a family. However, a sizable percentage of respondents to Fannie Mae’s National Housing Survey consistently state that they find it difficult to get a mortgage. This led us to ask two questions about the future of homeownership in the United States:

  1. Do renters, particularly those in the younger generation, still aspire to become homeowners?
  2. If so, when, if ever, do they expect to achieve this goal?

The ongoing decline in the homeownership rate, as well as strong growth in multifamily property construction and investor interest in single-family rental properties, indicates a shift towards rentership, at least in the near-term. To gauge whether this shift will likely persist, Fannie Mae’s National Housing Survey examined renter attitudes and preferences in the third quarter of 2012 to better understand the housing aspirations and expectations of this population. (Click here to read the full National Housing Survey Topic Analysis Report findings.) Although many current renters view their rental experience favorably, our survey results suggest that they do not aspire to remain renters. Indeed, Americans very much aspire to achieve homeownership, but seem to be keenly aware of the financial commitments that homeownership entails. Especially encouraging is the stronger aspiration to own witnessed in younger renters, as well as their primary view that renting is a stepping stone to owning.

Almost half of renters describe renting as having been a “somewhat positive” experience overall, and another third describe it as “very positive.” Data from Fannie Mae’s 2003 Survey (a one-time survey conducted prior to the inception of the monthly National Housing Survey in June 2010) shows that these attitudes haven’t changed in the last decade. However, recent data show that owners are even happier with their owning experience.

Views on homeownership or renting

Though a slight majority of renters give the edge to renting when it comes to budget, stress, and making the best decision in today’s economy, about half of renters ultimately think owning is a more sensible housing choice. Specifically, the vast majority of renters think people are better off owning if they seek control, privacy, security, and want to raise a family and invest wisely. Fifty-one percent of renters think owning makes more sense than renting when comparing both the financial and the lifestyle benefits of each housing choice. At 57 percent, younger renters (ages 18-34) are even more likely to think owning makes more sense. In general, Americans are more likely to prefer owning – a consistent finding since the National Housing Survey’s inception in 2010.

Better off Renting or Owning to Achieve Goals?
View closer to owning or renting?
View closer to owning or renting?

Renters who prefer to own perceive potential financial hurdles and many of them think it would be difficult for them to get a mortgage today. Compared to the owners that they aspire to become, renters are more likely to have fewer assets, higher debt stress, and less income. Despite the challenges, these aspiring owners are still reaching for homeownership. Their top reason for renting now is to make themselves financially ready to own in the future. Younger renters (ages 18-34) who prefer to own are even more likely than their older counterparts to say that they are renting now in preparation to own later.

Primary reason for renting now?

Renters who prefer to own appear to have a sense of measured optimism about their future homeownership prospects. Although 90 percent of them expect to reach their goal at some point, more than 40 percent of those who expect to buy think they will not do so for at least five years. Many aspiring owners, particularly the younger ones, say they are renting now primarily because they see it as a necessary step to make themselves financially ready to own in the future. The strength of the economy, particularly job creation and real income growth, as well as the favorability of credit conditions should play significant roles in determining if and when many of these renters will see the fruit of their efforts to become homeowners.

5-year outlook for those looking to become homeowners

Sarah Shahdad
Strategic Planning Analyst
Economic and Strategic Research Group

June 6, 2013

The author thanks Steve Deggendorf, Doug Duncan, Tom Seidenstein, Orawin Velz, Pat Simmons, and Kim Betancourt for valuable comments in the creation of this commentary. Of course, all errors and omissions remain the responsibility of the author.

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) group included in this commentary should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

The views expressed in these articles reflect the personal views of the authors, and do not necessarily reflect the views or policies of any other person, including Fannie Mae or its Conservator. Any figures or estimates included in an article are solely the responsibility of the author.

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Read the full Topic Analysis survey results presentation.

Renters: Satisfied but Reaching for Homeownership