July Consumer Indicators Show Shift Toward Renting

Washington, D.C.–Americans are increasingly downbeat about the state of the economy and their own finances, according to Fannie Mae’s July national consumer attitudinal survey. What’s more, they display little optimism about home prices and are demonstrating a greater inclination to consider renting as their next step.

The July consumer indicators show 70 percent of Americans are convinced the economy is headed in the wrong direction, versus only 23 percent who believe it’s on the right track. With more of them reporting substantially higher expenses than incomes, and with dissatisfaction mounting over tepid employment growth, consumers are increasingly unwilling to take on the financial commitment entailed by a home purchase, Fannie Mae reports.

“The basic story line is people aren’t any happier,” Fannie Mae vice president and chief economist Doug Duncan tells MHN. “In fact, they’re less happy than a year ago. Their expenses have risen faster than their incomes.”

The recent economic doldrums have removed doubts about renting in the minds of many Americans, he adds. “If you ask renters if renting or owning is a better financial decision, they say owning is a better long-term decision. But if they had to move in the near-term, they would rent again.”

Americans report they believe renting can be a good financial decision, he says, noting that owning tends to take priority after a couple has children. “But even among those folks, they say we have to get our credit in shape, and be financially sound enough to maintain a home. And they want their employment situation to be secure enough that they will be able to sustain [home ownership].”

There are approximately 4.5 million single-family home mortgages with delinquencies in excess of 90 days, Duncan says. Renters have observed the downside of home ownership and will be more cautious going forward.

“This is a return to more normal balance between owning and renting,” he says, observing that between 1995 and 2005, the U.S. created zero net new rental households. For every new household formed, one home-owning household was formed. “The ownership rates have been falling, so some households are shifting back to renting. That’s returning to more normal levels.”

Among highlights of the Fannie Mae survey was the finding that on average, and consistent with June indicators, Americans feel home prices will decline somewhat over the coming 12 months.

Similar to May and June survey results, just 11 percent of respondents believe this is an optimal time to sell a home. And in spite of the fact they believe rental prices will rise in the next year, those reporting they would rent their next home rose by 3 percent, while those saying they would buy fell 5 percent.

“The impact of recent financial market volatility on household wealth has been a setback to consumer confidence, which we’re seeing in our survey results and in Americans’ continued restraint in their willingness to take on additional financial commitments,” Duncan concludes.