Freddie Mac: Most Renters Carry Debt Each Month; Down Payment on Home Not a Top Priority

Looking for that “tipping point” between renting and homeownership? A new Freddie Mac survey suggests we’re not there yet.  

The Freddie Mac/Harris Poll survey of renters suggests many renters still feel challenged over their finances, with 66 percent carrying debt each month. While the quarterly poll said the majority of renters (56 percent) are optimistic about managing their debt, it also reported renters are saving money for numerous priorities, although a down payment on a home is not at the top of their list.  

The survey, conducted in October, said renters currently saving for all listed goals place a higher priority on saving money for an emergency/unexpected expense (59 percent), retirement (51 percent) and children’s education (50 percent) than a down payment on a home (39 percent) or a vacation (26 percent). They also indicate that they are behind in saving for those things.  

In addition, the survey said Gen Xers are more likely than Millennials or Boomers to buy a home in the next three years. The survey said Millennial renters are more likely to be saving for short- and long-term goals than Boomer and Gen X renters. For example, Millennial renters are more likely to be saving for a major purchase (92 percent) and a vacation (94 percent), when compared to Boomers (82 percent and 81 percent respectively) and Gen Xers (77 percent and 75 percent respectively).

“We know rents are rising faster than incomes,” said David Brickman, Freddie Mac executive vice president of multifamily. “Many renters don’t have enough to pay all their debts each month, which is forcing them to make tradeoffs, such as cutting spending on other items.”  

The survey said when broken out by generations, 58 percent of Gen X renters expect to purchase a home in the next three years, compared to 42 percent of Millennials and 33 percent of Baby Boomers. Nearly half (48 percent) of renters in single-family properties said they are “dissatisfied” with renting and are more likely to purchase a home in the next three years than multifamily renters (57 percent vs. 28 percent).  

“Growth in the renter segment will most likely occur through multifamily properties as more than half of those currently renting single-family properties are planning to become homeowners in the near future,” Brickman said. “Single-family renters are increasingly more dissatisfied than multifamily renters.”  

Satisfaction rates from March, October and June surveys this year are virtually unchanged, Freddie Mac said, with one-third of renters being very satisfied with their rental experience and nearly one-third (30 percent) indicating they are moderately satisfied. In the October survey, 70 percent of satisfied renters are likely to continue renting for the next three years, up slightly from 68 percent in the previous quarter; while 30 percent of satisfied renters indicate they are more likely to buy a home, compared to 32 percent in the previous quarter.  

The survey said ways in which renters are making adjustments due to rent increases include:

–51 percent are spending less on essentials, the same as last quarter.

–52 percent put off plans to purchase a home, compared to 44 percent in June.

–35 percent are contemplating getting a roommate, up from 29 percent in June.

–26 percent say they need to move into a smaller rental property, compared to 20 percent in June.  

A recent MBA research paper, Housing Demand: Demographics and the Numbers Behind the Coming Multi-Million Increase in Households ( said nearly 16 million new households are expected in the U.S. housing market by 2024.   

The paper said this demand, driven primarily by younger and minority borrowers, should lead to much greater demand for both renter- and owner-occupied housing. Up to 5.1 million new Millennial households could be created in the next 10 years, the paper said, with housing market growth over the next decade the strongest the U.S. has ever seen. Additionally, the MBA report noted as Millennials age and create more housing demand, “these long-term social trends will mix with demographic changes and the waning hang-over from the Great Recession with a net outcome of increased demand for housing.”