Economics of Owning vs. Renting

Interesting information from the FNMA site Follow Link for the entire article.

Economics of Owning vs. Renting

• The complexity of weighing both financial and lifestyle factors when deciding whether to own or to rent may result in some people favoring home ownership over renting, even if renting is the more beneficial housing decision.
• Sixty-six percent of respondents say they believe that housing is a safe investment – as safe as a savings or money market account.
• More than half say they believe that owning is a good idea, even if they plan to stay in the home less than three years.
• Eighty-six percent identify tax benefits as a reason to buy, even though tax benefits are small or non-existent for many homeowners.
• Demographic Trends’ Impact on Housing Choices

Marriage

• After controlling for age, income, wealth and a number of other factors, regression analysis indicates that married couples are 2.5 times more likely to own than other respondents.
• Single (unmarried) respondents are least likely to own and report the lowest level of satisfaction with their housing choices.
• Married couples, statistically most likely to own a home, represent a shrinking portion of the population.

Married couples represented 50 percent of households in 2009, compared with 56 percent in 1990.

Children

• Respondents with children generally have higher home ownership rates than those without children after controlling for age and income.
• Having children is cited as a major reason to buy a home by approximately three quarters (76 percent) of all households.
• Although having children increases consumers’ propensity to own a home, U.S. Census data indicate that the proportion of renters with children under 18 living at home is slightly greater than the proportion of homeowners who have children under 18 living at home.

In particular, 58 percent of single mothers surveyed by Fannie Mae rent, versus 32 percent overall for households with children under the age of 18.

The percentage of families with children is declining overall, and reached an all-time low of 45 percent in 2009.

Aging

• Americans 50 and older are more likely to believe they are better off owning than renting than any other age group, and are increasingly able to realize home ownership aspirations as they age.
• After controlling for income and wealth, regression analysis shows that a person age 45-55 is three times more likely to own than a person age 25-35 and eight times more likely to own than a person younger than 25.
• Home ownership rates increase with age, and the U.S. population is experiencing an aging trend fueled by the baby boomers.
• Thirty-eight percent of households were headed by someone 55 or older in 2009, versus 35 percent in 1990.

Key Findings on Immigration and Ethnicity

Population Growth

• The immigrant population in the U.S. is projected to grow by nearly 130 million people over the next 40 years, according to the U.S. Census Bureau.
• Much of this growth will driven by immigrants and their descendants.
• By 2050, non-Hispanic whites are projected to compose 46 percent of the population, compared with 65 percent today.

Ownership Among Immigrants & Minorities

• For first generation immigrants and for minorities, the percentages of survey respondents intending to own a home if they were to move in the future are higher than current ownership rates.
• First generation immigrants and minorities are more likely to be living in multifamily housing and more likely to want to own these units.
• African Americans are most likely to live in multifamily housing, at 41 percent, compared to 18 percent among whites, 26 percent among Hispanics and 28 percent among first-generation immigrants.

Among all sub-groups surveyed, African Americans are most likely to rent their homes.

• Fifty-two percent of African Americans rent, compared to 41 percent of first-generation immigrants, 38 percent of Hispanics, and 25 percent of whites.
• If current racial and ethnic home ownership rates remain unchanged, overall home ownership will decrease in the U.S. by four percentage points by 2050, as immigrants and ethnic groups currently have lower home ownership rates than non-immigrants and whites.

Outlook on Future Minority Ownership

• According to U.S. Census data, among ethnic groups, non-Hispanic whites currently have the highest rate of home ownership at 76 percent, compared to 51 percent for white Hispanics, 47 percent for non-Hispanic blacks, and 34 percent for black Hispanics.
• Among survey respondents, whites have a homeownership rate of 71 percent, compared to 44 percent for blacks and 53 percent for Hispanics. However, for blacks whose annual family income is between $50,000 and $99,000, the ownership rate soars to 60 percent (compared to 79 percent of whites) and for Hispanics, 63 percent.
• Immigrants also tend to have lower home ownership rates but the gap quickly narrows over time as tenure in the U.S. increases. Within 30 years of arrival in the U.S., immigrant home ownership rates catch up with overall average U.S. home ownership rates.

Key Findings by Geography

Homeownership Rates

• Overall ownership rates are fairly similar across the three cities with the highest rate of ownership in Phoenix (66 percent) – although with more mortgages than the other cities (49 percent in Phoenix versus 37 percent in Cleveland and 44 percent in Seattle).
• Seattle had the largest percentage of renters (35 percent) among the three cities (compared to 33 percent in Cleveland and 31 percent in Phoenix).
• Home price experience in the three cities has varied. Phoenix experienced the biggest house price bust, while prices have stayed at a fairly constant low level in Cleveland. Seattle has the highest prices and experienced a moderate drop during the crisis.
• The unemployment rate has generally been highest in Cleveland and lowest in Phoenix.
• The serious delinquency rate is highest in Phoenix, at 15.8 percent, and lowest in Seattle, at 7.7 percent.
• Phoenix has the highest rate of self-reported underwater mortgage borrowers – 41 percent of all mortgage borrowers in Phoenix say the amount they owe on their mortgage is at least 5 percent more than the current value of their home (compared to 28 percent of mortgage borrowers in Seattle and 27 percent in Cleveland.)

Impact of Housing Market

• Residents of Phoenix are more likely (76 percent) to say that given their current household finances they are better off owning than residents of Seattle (69 percent) despite a far greater percentage of underwater borrowers (41 percent in Phoenix versus 28 percent in Seattle.)
• Similarly, given current household finances, 72 percent in Cleveland say they are better off owning than renting, compared with 74 percent for the general population.
• In all three cities, people are willing to spend more money to own their homes rather than rent.
• In all three cities, residents are willing to buy even if they will stay in the home very briefly. Half of respondents will consider buying even if they plan to stay in the home less than three years, including 53 percent in Cleveland, 51 percent in Phoenix, and 46 percent in Seattle.