American renters are having a hard time breaking into the red-hot housing market, and the explanation is simple: buying a house is just too expensive.
Of 1,500 renters surveyed by real estate brokerage Redfin in March, 32% said they rent rather than own their homes because they can’t afford to buy a home where they want to live. Saving for a down payment is also a major obstacle, with 30% of people citing that as a barrier to buying. One in five renters said they aren’t looking to buy because they have a "good deal" compared to the significant expense of a home purchase, according to Redfin.
“A lot of American renters want to buy a home, but they’re stuck renting because it’s simply too expensive to break into the housing market,” Redfin Chief Economist Daryl Fairweather said in a news release accompanying the survey.
According to Redfin’s survey, the biggest financial obstacle keeping renters from entering the housing market is outstanding debt: 45% of people cited credit card, student loan, medical, automobile and other forms of debt as one of the factors preventing them from trying to buy. For 44% of respondents, current home prices are just too high, and 38% said they just don’t have enough income to save for a home purchase.
Why can’t renters afford to buy homes?
Home prices have skyrocketed over the course of the pandemic thanks to a surge in demand and a shortage of inventory. That mismatch means there are many more interested buyers than homes for sale, which has led to bidding wars and closing prices that are well above asking prices. To top it all off, mortgage rates are rising, sending some prospective buyers rushing to lock in a monthly payment before things get even more expensive.
All that spells bad news for buyers, but even worse news for renters hoping to break into the market for the first time. According to data from Realtor.com, the median rent price in the 50 largest U.S. cities shot up to an all-time high of $1,792 in February, with rents across the country up 17% compared to a year earlier. Rents rose even faster in popular Sun Belt cities like Miami, Austin and San Diego.
Even though many experts expect the housing market to cool slightly in the coming months, “fast-rising mortgage rates and still-limited numbers of homes for sale could mean some would-be buyers may stick with the flexibility of renting,” Realtor.com Chief Economist Danielle Hale said in a news release last month. “With rental demand already outmatching supply, rental affordability will remain a challenge.”