Most Americans who rent their homes think this option is more affordable than buying, but they may not be right.
According to a recent survey by Freddie Mac, 82% of renters now view renting as more affordable than homeownership, that’s up 15 points from last year and an all-time high for the survey.
But the data also shows that renters actually spend more of their income on housing than buyers, with 35% of renters spending one-third of their income on rent, while only 25% of homeowners spend that much on their mortgage.
Renters cited the upfront costs of owning a home – including down payments and closing costs – as the biggest barrier to making the leap to homeownership. Also, 40% of renters said they thought a monthly mortgage payment would cost more than a rent payment.
Perhaps for all these reasons, an increasing number of renters say they are unlikely to ever own home. According to the survey, less than a quarter of renters said it was “extremely likely” that they would ever own – that’s an 11 point decline from four years ago.
Part of the problem, according to Fannie, is the student loan debt and the burden of child care.
More than half of younger Millennials age 23-29 who rent said student loans forced them to make a different housing choice, while older Millennials said the same, although to a slightly lesser degree.
Both groups of renters and owners surveyed said child care impacted their housing decisions, with the greatest conclusion being the selection of a less expensive home.
“Our research confirms much of what we see in our business every day – affordability remains the essential factor when it comes to determining whether to rent or purchase a home, and the cost of housing is having a significant impact on households of every age, size and location,” said David Brickman, president and incoming CEO of Freddie Mac. “For millennials and many Gen Xers, buying a home is no longer just a decision based on housing and housing costs – increasing pressure from student loans and the rising cost of child care are having a significant impact.”
“While we tend to focus primarily on wages not keeping up with house prices and misperceptions of down payments, we should also recognize that for many millennials and Gen Xers, the basic cost of living has gone up,” Brickman continued.
“Heavy burdens from student loans and the rapidly rising cost of child care are clearly affecting the housing decisions of these individuals,” he concluded. “Given these challenges, it’s not surprising that more than one-third of survey respondents believe ownership is becoming less accessible.”
