Many households, particularly among younger professionals, are choosing to rent longer, despite surging rental costs. What is driving the sluggish transition from renting to home ownership?
A survey of 344 renters from the New York Federal Reserve's Survey of Consumer Expectations shows that many renters have a desire to own, but access to credit remains a big hurdle preventing them from buying. About two-thirds of renters surveyed say they thought it would be somewhat or very difficult for them to get a mortgage, while only about 5 percent thought it would be easy.
The following are the top reasons that renters offered up for why they have chosen to rent rather than purchase a home, according to the survey:
"We see that the main reasons preventing renters from becoming owners are weak balance sheets (low savings or high debt), low income, and lack of access to credit," economists with the Federal Reserve Bank of New York write in the report. "Some cite inherent advantages of being a renter (such as low upkeep and more flexibility), but notably, few say that they do not want to own because they are concerned that house prices might fall."
About 60 percent of respondents surveyed say buying a property in their ZIP code is a good investment, and only 12 percent thought of it as a bad investment.
"Current renters are as bullish on housing as current owners — or perhaps even slightly more so," the report's authors note. "This optimism is also reflected in expectations about future house prices."
Renters have slightly higher expectations for home-price growth than owners. Renters surveryed say that in the next year, they expect home prices in their ZIP code to rise by 5.4 percent. Home owners say they expect a 3.8 percent rise.
"These findings suggest that with a stronger economy and eased credit standards, flows into home ownership would pick up," the authors note. "However, one caveat is that many potential buyers with relatively low credit scores — 35 percent of renters in our sample think that their credit score is below 680 — might now be discouraged, meaning that they are convinced that they would not be granted credit and thus may fail to apply for a mortgage even after an easing in standards. Also, relaxing credit standards may, of course, have undesirable consequences down the road, since borrowers with lower credit scores are at higher risk of default."