Gap Year: Renters’ Housing Confidence Growing Faster Than Homeowners’
- While homeowners remain more confident overall in the housing market than renters, that “confidence gap” is shrinking in a majority of areas surveyed and in the nation as a whole as renter confidence grows more quickly.
- Among homeowners, headline confidence rose 3.7 points year-over-year, to 70.6 in January.
- Among renters, confidence rose 4.4 points in the past year, to 62.4.
Homeowners are generally more confident in their local housing market than renters. But that “confidence gap” has started to narrow, with renter confidence growing more quickly than homeowner confidence over the past year.
Renters are so confident in the housing market as a whole, in fact, that roughly 5.2 million say they expect to buy a home this year, according to results from the latest Zillow Housing Confidence Index (ZHCI), up from 4.2 million at the same time last year.
The index is measured on a 100-point scale, with readings more than 50 indicating a surplus of confidence. Overall, housing market confidence is rising more quickly among renters than homeowners. Among only homeowners, headline confidence rose 3.7 points year-over-year, to 70.6 in January. Among renters only, overall confidence rose 4.4 points in the past year, to 62.4 (figure 1). Confidence among all owners and renters rose 3.6 points, to 67.4.
It’s determining what’s driving that confidence where things get interesting.
Renters’ homeownership aspirations are up modestly year-over-year, and up more than current homeowners’ aspirations over the same period. But it is renters’ rapidly improving assessments of their local market conditions and expectations for future performance that is really pushing their confidence up, not necessarily their personal prospects.
The two ZHCI sub-indices asking renters about their local housing market conditions (HMCI) and their expectations for their local housing market (HEI) improved the most over the past year. The sub-index that asks renters about their specific homeownership aspirations (HAI) increased much more modestly. Moreover, while the HMCI and HEI showed strong improvement between January 2014 and July 2014, and again between July 2014 and January 2015, the HAI improved only during the first half of 2014 but was flat during the second half of the year.
Who Wants to Buy, and Where?
The ZHCI allows us to more narrowly examine renters’ plans to buy within the next year. Since January 2014, the share of renters who said they expect to buy a home in the next 12 months increased in eight of the 20 metro areas covered by the survey, was flat in nine and declined in three.
This is particularly noteworthy, as those renters who have largely remained on the sidelines of the housing market recovery – including young adults, low-income and minority renters – will be particularly important in helping boost home sales volumes in 2015. Today’s renters are tomorrow’s buyers.
The share of young-adult renters (aged 18 to 34) who said they expect to buy a home in the next 12 months increased in half the metro areas covered by the survey, was flat in six and fell in four.[1] The largest year-over-year percentage point increases among those younger renters who indicated plans to buy were in Phoenix, San Francisco and Atlanta. The largest percentage point decreases were in Los Angeles and Miami.
The share of low-income renters – including renters with an income less than $25,000 – who said they expect to buy in the next 12 months increased in six metro areas, was flat in six and fell in eight. The largest year-over-year percentage point increases among those low-income renters who indicated plans to buy were in Dallas and Chicago. The largest declines were in Dallas, Las Vegas and Minneapolis.
The share of black renters who said they expect to buy in the next 12 months increased in eight metro areas, was flat in seven and fell in five. The largest year-over-year percentage point increases among those black renters who indicated plans to buy were in Phoenix and Denver. The largest declines were in Tampa and San Diego.
The share of Hispanic renters who said they expect to buy in the next 12 months increased in 12 metro areas, was flat in three and fell in five. The largest year-over-year percentage point increases among those Hispanic renters who indicated plans to buy were in Phoenix, Denver and Tampa. The largest declines were in Boston and Philadelphia.
Among the key buyer groups who have largely remained on the sidelines of the housing recovery, Hispanics and, to a lesser extent, young adults, appear to be particularly eager to get out of rentals and into homeownership. Low-income renters continue to face substantial barriers to homeownership, although their aspirations are improving in some unlikely places, including pricey Los Angeles and San Diego.
[1] Where the absolute change is less than or equal to 2 percentage points, we consider that metro area to be “flat.”