NAREE Special Report: Renters Stay Renters for Longer
Renting is now considerably more affordable than buying in many markets, according to Zillow Senior Economist Orphe Divounguy.
Multifamily and single-family rentals continue to benefit from the increasing unaffordablity of buying a single-family home.
With the typical mortgage downpayment having more than doubled in 2022, renters are staying renters for longer, according to Orphe Divounguy, senior economist for Zillow, noting the average age for a renter has increased to 42 from 36 in 2000.
“Renters are getting older,” Divounguy said yesterday at the National Association of Real Estate Editors’ 59th annual journalism conference in New Orleans. “They are starting families, and they are doing that renting instead of buying their own home. That is a symptom of the housing affordability.”
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In a growing number of markets, Divounguy said, a resident’s first single-family home is a single-family rental—good news for the BTR market—because renting is more budget-friendly than owning.
In fact, the average downpayment required to keep a household’s housing costs at 30 percent of their income—the typical measure of housing affordability—has ballooned to around $70,000. But the amount varies broadly. In Pittsburgh, the downpayment required to maintain affordability is $7,000. In San Francisco, it’s now $875,000.
Prepandemic, Divounguy noted, it was $400 a month cheaper to own than rent. Now, assuming a 10 percent downpayment, there is a median $100 monthly premium to buying vs. renting a single-family home, and the premium is even greater in multifamily thanks to a “50-year high surge” in construction that helped “tame” rent growth.
Rents have cooled the most in markets that have built the most, Zillow finds. They are still very strong in the Northeast and strong in Midwest, where there was not a lot of building. Cleveland now tops the nation for rent growth. (Therefore Divounguy said, a “low-hanging fruit” solution to housing affordability is to make building housing easier for developers.)
Again, there is a broad range of scenarios. In San Francisco, it will cost $3,500 more per month to buy than rent. In Detroit, it will cost $148 more. However, in Chicago, it is $335 cheaper to buy, and in New Orleans it is $273 less expensive.
High downpayments are not the only reason for skyrocketing house prices. There has been very little inventory coming to market since interest rates spiked in 2022. Zillow expected sellers to start releasing their homes to the market in 2025. That has borne true. But buyers have not come back in kind because of high costs and because they have more options in the SFR and multifamily markets. As a result, it is a buyer’s market for single-family homes for the first time in a long time.
Zillow is forecasting that home prices will finish the year 1.6 percent lower than last year due to the increase in inventory—the first year-over-year decline since 2011. Since rents tend to follow prices, as the for-sale housing inventory rises, renters also have more bargaining power, and there will be some downward pressure on rents. But the downward pressure will not be as severe since builders have pulled back on construction.
Multifamily challenges
While the outlook for multifamily demand is robust, developers have their own challenges in satisfying that demand. There is considerable pressure to cater to changing renter preferences (renters want more space and more amenities) amid rising costs, slower rent growth and oversupply in some markets, Divounguy told MHN following his address.
“If you are a housing provider, you are really having to attract new tenants and keep your existing tenants,” he said. “You want to keep your existing tenants because, if your unit goes vacant, it will be vacant for longer.”
