Photo: David Sawyer/Flickr
Here’s why so many qualified homebuyers choosing to rent instead of buy
Although the current homeownership rate is at a 50-year low in the US, nearly 14 percent of renters who are actively searching for a new rental could actually afford to purchase a home and are choosing not to, according to a new analysis conducted by Zillow.
Zillow analyzed renter profiles on its site, examining specifically users’ self-reported credit scores and income to assess which large housing markets have the most highly qualified renters.
The data do not necessarily reflect the full spectrum of renters, only those who have created profiles on Zillow through mid-2016, but still likely capture an important segment of the rental market, according to Zillow.
Zillow found 13.6 of renters actively searching had credit scores above 700 and were relatively high income earners — meaning they had an income level equal to or greater than what’s necessary to afford the median rent in their market.
Meanwhile it found 13.8 percent of actively searching renters had the income level required to afford a median or “typically” priced home in their metro.
Housing markets with lower homeownership rates tended to have more financially qualified renters, according to Zillow’s data.
Three California cities — San Jose, San Diego, and San Francisco — had the highest share of renters that could afford a home. In San Jose alone, where the median home price is nearly $1 million, over 35 percent of renters would be able to buy a home based on their income level and credit score.
Los Angeles, Seattle, New York City, Boston, Washington DC, Portland, and Denver rounded out the top 10 cities with a population of qualified renters higher than the national average of 14 percent.
While there are many reasons for the homebuying shift, demographics play a central role according to Zillow. Younger people are putting off many life-events that are tied to homebuying, like marriage and having children.
Evolving economies are also to blame, says Zillow. Cities that are experiencing a booming labor market thanks to technology may find they are attracting cautious homebuyers, who may rent until deciding where to settle down more permanently.
However, the going isn’t much easier in many markets for renters either. “They are competing against throngs of financially sound applicants with strong credit and high incomes,” says Zillow Chief Economist Dr. Svenja Gudell in a press release.
You can read the full Zillow study here.