Home prices are high, mortgage rates are high, and rents are high, too. But America’s renter population is progressing three times faster than its homeowner counterpart.
The number of renter households in the country rose 1.9% in the second quarter from a year earlier, and the number of homeowner households only increased 0.6% during the same period, a Redfin analysis of Census Bureau data found. That doesn’t mean there are more renters than homeowners: both renters and homeowners reached all-time highs, at 45.2 million and 86.3 million, respectively. However, interestingly enough, “the number of renter households grew at the second-fastest pace since 2021, while the number of homeowner households grew at the slowest pace since 2019,” the analysis published Friday read.
The second quarter increase followed a jump in the first quarter of this year, when the rise in renters peaked at 2.8%—the greatest gain in nearly a decade. Renter households have outpaced homeowner households in terms of formation for three consecutive quarters now, “partly because homebuying costs have risen much faster than rents,” according to Redfin.
Renting, buying, it’s all costly. But at the moment, people are opting to rent instead of buy because of the one-two punch of sky high home prices and mortgage rates, coupled with incomes that haven’t kept pace. The thing is, homeownership is connected to wealth, and if more and more people are renting, and doing so for longer periods of time, it widens an already existing gulf between haves and have-nots in the housing world.
Home prices and rents rose considerably during the pandemic, but rents have pretty much flatlined since, and the pace at which home prices increase has only recently begun to slow. Mortgage rates shot up once the Federal Reserve began raising interest rates two summers ago to tame hot inflation, but they are falling in dribs and drabs. Still, as Redfin points out, rents increased less than 1% in June from a year earlier, while mortgage payments rose roughly 5%. Meanwhile in the same month, rents were 23% higher than they were before the pandemic, but mortgage payments were an enormous 90% higher.
“The cost of both renting and buying a home has skyrocketed in recent years, but the affordability crunch isn’t quite as severe in the rental market. That’s because America has been building a lot of apartments to keep pace with robust demand from renters,” said a Redfin senior economist, Sheharyar Bokhari.
Again, rents are still high. June’s median rent was only $46 less than the all-time high. But there has been an apartment building boom, which is why rents have flattened, but multifamily building permits and starts are slowing down substantially, so rents could be set to rise. Not to mention, the country is still short millions of homes. But in metropolitan areas where so many homes are being built, we’re seeing declines in home prices and rents, such as Austin.
“The country’s leaders should heed this lesson when considering how to improve affordability in the homebuying market; when there’s more housing to go around, prices don’t increase as fast,” Bokhari said.
On that note, you might not be surprised to learn Los Angeles has the highest rentership rate in the country. More than a third of all households in the country are renter households, but in Los Angeles 53% are. The average home value in the city is about $973,000, and the national average is roughly $363,000; the median rent for all bedrooms and all property types in Los Angeles is $2,800, so 30% higher than the national median. It’s one of many California cities that just can’t seem to build enough homes.
