American renters are growing more confident in the housing markets, and more than 5 million are planning to buy a home this year, according to the Zillow Housing Confidence Index (ZHCI).
More than 12% of current renters nationwide – roughly 5.2 million – said they plan to buy in the next year, an almost 25% jump from the same time last year, when 4.2 million renters said they had plans to buy within 12 months.
Thanks to historically low mortgage interest rates and home values below peak levels, buyers can expect to spend about 15% of their monthly income on a mortgage payment, compared to 22% historically, according to Zillow research.
Typical renters should expect to pay 30% of their income to rent, compared to 25% a generation ago.
“As home affordability continues to look great and rental affordability looks abysmal, many current renters clearly seem to be re-thinking their attitudes toward homeownership, and are expressing more confidence in the overall housing market as a result,” said Zillow Chief Economist Dr. Stan Humphries. “But while this confidence is heartening, it’s important to inject a note of reality here: Not all renters who want to buy this year will be successful. Saving a down payment, qualifying for a mortgage and finding an affordable home to buy all remain formidable challenges for many.”
Among all renters surveyed nationwide, 59.7% said they think buying a home is the best long-term investment a person can make, compared to 56.9% at the same time last year. This improved long-term outlook was especially evident among younger renters. Among all 18- to 34-year-old renters, 66.2% said owning a home was the best long-term investment, compared to 61.4% last year.
The index is measured on a 100-point scale, with readings more than 50 indicating general confidence.
Overall, housing market confidence is rising more quickly among renters than homeowners. Among only homeowners, headline confidence rose 3.7 points year-over-year, to 70.6 in January.
Among renters only, overall confidence rose 4.4 points in the past year, to 62.4. Confidence among all owners and renters rose 3.6 points, to 67.4.
Although survey respondents in most markets said they expected home value appreciation to slow in 2015, in all areas they also said they expected home value growth to exceed the rate of inflation by an average of more than 2%.
During the past year, consumer expectations for long-term home value growth have increased. Consumers now expect homes to appreciate over the next 10 years by slightly more than what is expected by experts – and at a faster rate than before the housing bubble.
“This latest increase in The U.S. Housing Confidence Index confirms that prevailing sentiments and expectations among consumers concerning their local real estate market–important economic factors not reflected in widely-followed consumer confidence indexes–continue to improve and bode well for the U.S. economy,” said Terry Loebs, Founder of Pulsenomics.
“Renter aspirations for homeownership are on the rise in most cities. More homeowners are recognizing restoration and growth in the value of what for most of them is their largest asset by far–their home. In every market surveyed, both renters and homeowners expect the annual growth rate of local home values to handily beat the rate of inflation within the broader economy over the coming decade. These insights should remove any lingering doubt that the U.S. housing market’s foundation is now solid enough to withstand The Fed’s monetary policy liftoff.”