Conventional wisdom has long suggested that renters rent because they can’t afford to buy homes. But Zillow has posed the question of whether renters are renting out of necessity or choice.
Zillow’s latest look into homeownership rates found that almost 14 percent of renters are qualified to buy the median property in their market, based on income and credit rating.
Silicon Valley renters are especially in a position to buy, despite living in the nation’s most expensive home ownership area. San Jose, in fact, was the only large market Zillow analyzed where the share of on-market renters with strong credit and high incomes exceeds the share of those with weak credit and low-incomes.
In most places, Zillow senior economist Aaron Tarrazas said, were high-earning renters with relatively low credit scores.
“This could be the result of several factors, including renters who experienced a temporary loss of income and/or foreclosure during the housing bust, contributing to a weak credit history, or younger adults with strong earnings but short credit histories,” he said.
Like the Bay Area, Seattle, Washington, DC, Salt Lake City, and Boston buck that trend. Conversely, few on-market renters could afford to buy in markets like Youngstown, Ohio, Allentown, Pennsylvania and Rochester, New York, the report stated.
“Young adults are waiting longer to buy homes as they put off many of the decisions and events that typically accompany homeownership, including getting married and starting families,” Terrazas said
An evolving economy is also playing a part.
“Some locally booming labor markets‒‒driven by tech or, until recently, energy‒‒have attracted well-heeled newcomers who tend to rent before deciding whether to settle permanently,” Terrazas said.
In general, he said, markets with lower homeownership rates have higher proportions of on-market renters with both strong credit and high incomes. In some instances, these renters may be shopping simultaneously for both a home to buy or a home to rent, but other factors are in play as well.
“Markets with the highest proportions of renters who could likely buy a home also tend to be the markets where for-sale inventory tends to be most constrained,” Terrazas said.