Renters are not converting to buyers anymore, and here is the reason.

Renters are not converting to buyers anymore, and here is the reason.  Author Trey Garrison sorted through data released by the NY Federal Reserve Bank for clues. Read his article below.


Why aren’t more renters becoming homeowners?

New York Fed report suggests the answers are obvious

Trey Garrison


The main factors preventing renters from becoming owners are weak balance sheets, low income, and lack of access to credit.


Some cite inherent advantages of being a renter, but notably few say that they do not want to own because they are concerned that house prices might fall.


Still, there’s no one-size fits all.


Recent activity in the U.S. housing market has been widely perceived as disappointing. For instance, sales of both new and existing homes were about 5 percent lower over the first half of 2014 than over the first half of 2013. From a longer-term perspective, a striking statistic is that the homeownership rate in the United States has fallen from 69% in 2005 to 65% in the first quarter of 2014. This decrease in homeownership is particularly pronounced for younger households, implying that many of them are remaining renters for longer than in the past. In this post, we use survey evidence to shed some light on what is driving this sluggish transition from renting to homeownership.


Understanding the rate at which renters enter homeownership is important for several reasons. One, first-time homebuyers (mostly former renters) generally account for a substantial portion of home sales. (The share going to first-time buyers has historically amounted to 30 to 50% of all home sales.) Two, in the time series, renter-to-owner transition flows tend to lead the business cycle and house price growth.


What could be inhibiting the flow of renters into homeownership? Is it that renters today simply do not want to own because of changed attitudes toward housing, as sometimes hypothesized in the popular press? Or are they prevented from entering homeownership by fundamental factors, such as low incomes and weak personal finances, coupled with difficult access to mortgage credit? To help answer these questions, we use data from a special module on housing-related issues in the New York Fed’s Survey of Consumer Expectations, fielded in February 2014 to 867 homeowners and 344 renters.





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