One-in-Five Renters Casts a Shadow on the For-Sale Housing Market
- 19 percent of 2016 renters that moved within the prior 12 months seriously considered buying instead. An additional 39 percent said they considered buying, but were more serious about renting.
- Almost a quarter of renters with an annual household income between $50,000 and $99,999 seriously considered buying a home when they last moved, compared to 12 percent of renters with an annual household income below $25,000.
For-sale inventory is exceptionally tight and competition among buyers is high: In 2016, the typical home buyer made offers on at least two-to-three homes before closing. At the same time, almost one-in-five renters that moved into a rental unit seriously considered buying at the time, but didn’t – perhaps because of those same buying hurdles.
According to data from the 2016 Zillow Group Report on Consumer Housing Trends, 19 percent of 2016 renters that moved within the prior 12 months seriously considered buying instead. An additional 39 percent said they considered buying, but were more serious about renting. The data indicate that unmet home buying demand could be even higher than closed home sales data suggest.
In 2016, about 19.3 million renter households moved in the previous 12 months, which would imply about 3.7 million of those households seriously considered buying at the time. It’s very likely that in some cases, these now-renters made failed offers or were unable to find a home that they liked given inventory constraints.
Upper middle-income renters were most likely to also be home shoppers. Almost a quarter of renters (24 percent) with an annual household income between $50,000 and $99,999 seriously considered buying a home when they last moved, compared to 12 percent of renters with an annual household income below $25,000. Similarly, older renters are more likely to have seriously considered buying when they last moved up – until around the age of 31, after which the probability begins to decline.[1]
Why Does This Matter?
For much of the economic recovery, economists talked about the “shadow unemployment rate,”[2] the idea that some workers might not formally count as unemployed (people who are jobless and actively seeking employment), but who might nonetheless fill a job should the right one come along.[3] The concept is important because it represents a potentially significant source of labor not reflected in active measures of market participation, such as the number of workers demonstrably searching for a job.
With the American labor market now at full employment, shadow labor supply is a less prominent concern. But new shadows are lurking along the sidelines of the American housing market. Not unlike those workers that aren’t technically unemployed but might take the right job if offered, there is a substantial population of renters who at least considered buying when they last moved, but ultimately decided to rent for some reason.
It is not clear in the data if the renters surveyed that also considered buying remain interested in or are actively looking to buy a home. But it is clear that a meaningful portion of renters – particularly upper-middle income renters in their early 30s – represent an important source of shadow demand in the housing market.
[1] This relationship was built into a simple probit model which estimated the probability of a renter seriously considering buying the last time they moved as a function of age (level and quadratic) and income.
[2] Less colloquially referred to as “alternative rates of labor underutilization.”
[3] This group includes workers who are employed part-time but would prefer full-time employment, and potential workers who have temporarily given up searching for a job.