Why Renters Can’t Make the Move

Spiking rents are making it hard for would-be buyers to save for down payments.

October 28, 2015

In August, rents spiked 3.6 percent over the same time a year earlier, the fastest pace since 2008. As rental vacancy rates fall across most parts of the country and more jobs are created, they will continue to jump further. This trend is both good news and bad news.

Naturally, people collecting rents are thrilled with the gains they’re seeing. Both large apartment investors and mom-and-pop landlords are enjoying the best conditions they’ve seen in years. As REALTORS®, many of you are among the biggest beneficiaries; our surveys indicate about a third of you own investment property.

Of course, renters don’t like forking over more money to be tenants. That’s why, when rents rise strongly, it creates demand for home buying. But that isn’t happening this time. In fact, the share of first-time buyers, who typically lead the move from renting to owning, continues to hover at near 30-year lows.

Rising rents are making it difficult for potential first-time buyers to become owners, especially since rent increases are outpacing wage gains. That means more of a tenant’s income is being eaten up in rent, making it harder to save for a down payment.

The weak wage growth is a consequence of decade-long subpar economic growth. Historically, U.S. gross domestic product grows at a 3 percent annual rate. But since the recession, growth has been averaging only 2.2 percent. A decrease of 0.8 percentage points might sound small but, in an economy of $18 trillion, it has a significant, cumulative impact.

Meanwhile, home prices are rising, in large part because builders aren’t adding new homes for sale at a rate matching demand. Only 5 million single-family and apartment homes have been built in the last five years, even though 12.5 million jobs have been added during that period.

The lag in construction represents good and bad news. It’s helping to keep rents and home prices up, but it’s making home ownership more difficult as tenants struggle to save for the down payment they’ll need to buy an increasingly costly home. While the construction outlook is unclear, until builders contribute to the overall housing stock at a more normal pace, home prices and rents will continue to rise.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Lawrence Yun is Chief Economist and Senior Vice President of Research at the National Association of REALTORS®. He oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.

Related