Freddie Mac survey highlights affordability challenges of renters and homeowners

More than eight out of 10 tenants see renting a residence as a more affordable option than homeownership, according to a recent survey by Freddie Mac. However, the report also found that renters were more likely to spend a greater share of their income on housing or cut spending on essential items in order to afford monthly payments.

The "Profile of Today's Renter and Owner," a survey issued by Freddie Mac twice annually, polled 4,040 respondents, including 2,864 homeowners and 1,119 renters. Responses were collected over a four-day period in April.

Eighty-two percent of renters said they consider renting to be more affordable than homeownership, an increase of 15 percentage points from a February 2018 survey. Eighty percent of all survey respondents considered their current housing choice to be the most affordable one.

However, Freddie Mac found that 34 percent of renters spent more than one-third of their income on housing. Just one in four homeowners were in the same situation. While just 17 percent of baby boomer homeowners spent more than one-third of their income on their mortgage, 41 percent of baby boomer renters did so.

The initial costs of purchasing a home were often an insurmountable obstacle for renters. Nearly half—49 percent—said acquiring enough money to cover a down payment and closing costs was a major obstacle to buying a home. Just 30 percent of homeowners said the same.

Eighty-eight percent of low-income renters said it would be a challenge to save up enough money to purchase a home. Seventy-two percent of middle-income renters also felt it would be difficult to cover the initial down payment and closing costs of a home purchase.

Renters were more likely than homeowners to cite other challenges in purchasing a home. Forty-one percent said not having enough money to make the monthly mortgage payment was a major obstacle to purchasing a home, along with 29 percent of homeowners. Forty percent said the likelihood of mortgage payments exceeding their current rent payments was a major concern; 32 percent of homeowners said a more expensive mortgage payment would be a major obstacle if they planned to move to another 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 of Freddie Mac. "For millennials and many Gen Xers, buying a home is no longer just a decision on housing and housing costs – increasing pressure from student loans and the rising cost of child care are having a significant impact."

Fifty-one percent of younger millennial renters, or those ages 23 to 29, said they had to make a different housing choice due to their student loans. Forty-one percent of older millennial (ages 30 to 38) renters, 38 percent of younger millennial homeowners, and 36 percent of older millennial homeowners also said student loan payments affected their housing choice.

For those working in an essential workforce position—such as health care, education, or law enforcement—more than half had to square their housing choice with repaying their student loans. Fifty-three percent of renters and 51 percent of homeowners working an essential job said they made this choice.

Child care was also a major factor in housing decisions, with respondents considering proximity to a daycare as well as daycare costs. Half of all homeowners and 44 percent of renters working in the essential workforce said child care considerations affected their housing choice, compared to just 11 percent of homeowners and 13 percent of renters in the non-essential workforce.

Among those who said child care affected their decision, 26 percent of homeowners and 21 percent of renters said they opted to buy a less expensive home. Twenty-four percent of owners and 15 percent of renters said they had postponed a home purchase, while 23 percent of homeowners and 22 percent of renters decided to live in a less expensive area.

Just over half of all respondents—51 percent—said they made changes to their spending or housing in the past two years in order to afford their rent or mortgage. Sixty-two percent of renters said they had done so, along with 47 percent of homeowners.

Fifty-five percent of renters and 52 percent of homeowners said they had cut spending on non-essential items, such as entertainment. Forty-two percent of renters and one-third of homeowners reduced spending on essential items like food or utilities.

Forty-four percent of renters said they decided to relocate within the past two years due to difficulties in affording their residence. Thirty-five percent of homeowners said they had also moved within the past two years in order to seek more affordable accommodations.

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