Tripling Rentership Rate Highlights Pooling Purchase Demand

The number of renter households rose 2.7% on an annual basis in the third quarter to a record 45.6 million, three times faster than the 0.9% increase in homeowner households, which now total a record 86.9 million, new analysis from Redfin shows.

“Renter households have formed faster than homeowner households for the past four quarters as the cost of buying a home rose faster than the cost of renting,” the report explains. Nationwide, just over one-third (34.4%) of households in the U.S. are renter households — a figure that has remained the same for the past three quarters.

Tallying 1.18 million additional renter households, the 2.7% annual increase marked the second-fastest pace since 2015, trailing only the first quarter of 2024’s 2.8% rate.

“Affordable housing has been at the forefront of this election cycle because so many people are struggling to see how they will ever become homeowners — especially those from younger generations,” commented Redfin Senior Economist Sheharyar Bokhari in today’s report.

A recent Freddie Mac study revealed similar findings, as a lack of affordable entry-level homes and exceptionally difficult economic conditions for younger first-time homebuyers (FTHBs) and renters stuck renting (RSRs) present persistent barriers to lenders' access to this demand — even as these buyers comprise an ever-larger slice of the home-purchase pie.

In the second quarter, FTHBs comprised 53% of all Freddie Mac-funded home purchases. The share was roughly 20% in 2004, two decades ago.

Now, multiple years of rising housing costs — from elevated mortgage rates to rapid home price gains to increased home insurance and property tax rates — have bottlenecked new purchase demand among younger home shoppers. As Gen Z’s oldest members enter the workforce, millennials are aging into prime first-time homebuying age.

As these two cohorts become the driving force in the purchase market in coming years, swelling the pool of purchase demand, young adults who are renting earn more money today than in prior years, even after adjusting for inflation. The number of renter households ages 25-44 with inflation-adjusted earnings of at least $75,000 exceeded 3 million in 2023.

Problematically for unlocking that new purchase demand, entry-level homes have appreciated at a higher rate than other homes across price tiers. Freddie Mac data show that between January 2000 and July 2024, entry-level home prices grew 63% more than high-end home prices.

“Building more homes will help address that,” Bokhari said, “but we also have to recognize that Gen Z and future generations may not view homeownership as a life goal, and the rentership rate may continue to rise for years to come.”

When average rates on 30-year mortgages fell to 6.08% in late September, Redfin reported that homeowners needed to earn $77,000 to afford the typical U.S. starter home. By late October, as mortgage rates returned to roughly 7%, Redfin reported that buyers had lost $33,000 in purchasing power in the swing.

Mortgage rates aside, less affordable housing is acutely felt by renters trying to save for down payments, especially those without access to funds from family members or friends. Such need backs recent tallies of ever-increasing numbers of down payment assistance (DPA) programs.

According to Redfin, rent increases have leveled off over the past two years while incomes have risen roughly 4%, improving the ability for renters to build savings. Still, a recent survey from Maxwell, a mortgage advisory firm serving small and mid-size lenders, revealed that more than half (54%) of sidelined homebuyers have been searching for a house to buy for more than a year, with almost 18% looking for at least two years.

As one might expect, rentership share is higher in metros where homes are generally more expensive to buy and lower in metros where homes are generally less expensive to buy. San Jose, Calif., has a rentership rate of 52%, the highest among the 75-largest U.S. metros. San Jose is followed by Los Angeles (50.8%), New York (49.1%), and San Diego (48%).

Cape Coral, Fla. (21.8%), Charleston, S.C. (23.7%), Columbia, S.C. (24.5%), Allentown, Penn. (27.2%), and Detroit (28.2%) boast the lowest rentership rates of the metros Redfin analyzed.