Two Charts That Show the Realities Facing Homeowners and Renters

September 14, 2016 | By

Ellen Tsay, of New York City, had been thinking about buying a home for a while, but she finally made the jump this year when she realized a mortgage payment would be “basically” the same as her rent cost.

“I’m luckier than a lot of people in that my rent prices haven’t increased as dramatically each year as I’ve heard for others,” Tsay, who works in the technology industry, says. “But because this is New York, my rent is still high, and I know it’s never going to be lower.”

Regardless of whether you rent or buy, you’ll be paying more to do so, according to second quarter data released by the Census Bureau, which also shows the homeownership rate in the U.S. is at the lowest level in more than 50 years.

Less for More

A chart from the Census Bureau shows how rental asking prices have continued to rise through the last two recessions. Meanwhile, home sale asking prices, which have been rising this year, are recovering from the major drop during the last recession.

The median asking rent for vacant units was $847 in the second quarter, according to the Census Bureau. The median asking sales price for vacant sale units was $164,500.

rental prices

Median asking rent for vacant “for rent” units shown with gray bars that indicate when the economy was officially in a recession. (Source: U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey)

 

rental prices

Median sales price of vacant “for sale” units. (Source: U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey)

The percent of households that are owner-occupied, known as the homeownership rate, was 62.9 percent in the second quarter, the lowest since 1965. The rate is 0.5 percentage points lower than the second quarter of last year and 0.6 percentage points lower than the rate in the first quarter of 2016.

“Tight housing inventory from a lack of new construction continues to create affordability challenges, particularly at the lower end of the market,” Doug Duncan, Fannie Mae’s chief economist, notes in an economic outlook note.

Duncan says “robust” rental demand during the second quarter created the lowest rental vacancy rate in decades. The vacancy rates were 6.7 percent for rental housing and 1.7 percent for homeowner housing, according to the Census Bureau.

More Households Forming

But overall household formation has been relatively steady, thanks to renters who are going out on their own, the Wall Street Journal points out. Renter-occupied housing units surged by 967,000 in the second quarter to 43.9 million units from 42.9 million units in the second quarter of last year.

Meanwhile, owner-occupied units fell by 22,000 units to 74.4 million units in the second quarter compared to the same period last year.

Homeownership rates were highest for older households. Occupants aged 65 and older had a homeownership rate of 77.9 percent. The rate was lowest for those under 35 years at 34.1 percent.

Older Millennials Looking to Buy

Whatever is holding back renters from buying, whether it’s fewer starter homes or incomes, preferences may change in the future, leading these renters to become buyers.

Between 2010 and 2012, homeownership rate gains stabilized for young adults through their late twenties and early thirties, and between 2012 and 2014 homeownership rate gains were larger than the increments for previous generations passing through the same age range during the housing bust, according to Fannie Mae’s Economic and Strategic Research Group.

Duncan says these are “some tentative” signs that older Millennials are moving toward homeownership, spurred by strengthening job growth and wages.

Tsay, 31, says the biggest reason she decided to buy is she plans to make New York her home in the foreseeable future. But she recognizes that buying isn’t for everyone.

“To this day, I have some friends who think I’m a little nuts for buying versus renting,” Tsay says. “Renting certainly gives flexibility, and if you have a great landlord and a space you like — like I do now — it can be a great situation that’s hard to leave.”

Attractive housing inventory and low mortgage rates were other drivers for Tsay that made this year the “right” time to start looking. Her offer for a one-bedroom apartment was accepted in the spring. She hopes to close this month.

“It’s an added benefit that buying is generally a good investment in New York City and something to help me build equity,” she says. “More than the black and white benefits of buying, I’m also just excited to have a place that’s my own.”

Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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