Home ownership in the United States has slowly fallen in recent years to currently its lowest level since 1965 but new research from the National Association of Realtors suggests that could be halted.

The research shows that there are many affordable metro areas and a large segment of current people who rent their home earn enough income to qualify to buy a property.
 
NAR reviewed employment growth, household income and qualifying income levels in nearly100 of the largest metropolitan statistical areas across the country to determine which areas with employment gains above the recent national average also have the largest share of renters who can currently afford to buy a home.

Of the top 10 metro areas with the highest share of renters who earn enough to buy, nine were either in the South or Midwest, including three cities in Ohio.

Lawrence Yun, NAR chief economist, pointed out that there has been a significant increase in renter households both among young adults and those who lost their home since the economic downturn, especially in metro areas that have seen robust job creation and a resulting influx of new residents.

‘Even in a time of expanding home sales, steady job growth and historically low mortgage rates, the homeownership rate recently tumbled to its lowest level in over five decades as many renters struggle to juggle escalating rents without commensurate income gains,’ he said.

‘However, this new study reveals that there are several affordable, middle tier markets with solid job gains and a large segment of renters who earn enough to buy,’ he added.

Meanwhile, a separate report suggest that across the largest rental markets in the United States almost 14% of renters have strong credit scores, relatively high incomes and could afford to buy the median home in their market.

As the homeownership rate has declined over the past decade, a broader socio-economic swath of Americans are renting than at any time in recent history, according to the report from Zillow and the real estate firm says that means people who could afford to buy are renting instead, increasing competition for limited available homes for rent.

San Jose, San Diego, and San Francisco have the largest segments of on-market renters who have the credit score and income necessary to purchase a home, making those metros highly competitive for renters. Los Angeles, New York and Seattle also made the list of metros with large segments of current renters who are financially qualified to buy a home.

To determine which markets have the highest number of financially stable and thus most competitive renters vying for the attention of landlords and property managers, Zillow examined the self-reported credit scores and incomes of renters who were on the market during the first half of 2016.

Zillow also looked at regional median rental and home values and competition to determine the markets with the highest share of renters who reported a monthly income equal to or greater than necessary to afford the typical rental and median home in the metro area.

The report also points out that there are long term demographic trends impacting renter qualifications and competition: young adults, both the affluent and otherwise, are renting longer than ever before as they delay many of the hallmarks of adulthood that typically lead to home ownership, such as finishing their education and starting families.

In general, markets with lower home ownership rates have higher proportions of on-market renters with both strong credit and high incomes. That said, even when controlling for the home ownership rate, booming markets closely associated with the tech industry, such as San Jose and San Francisco, tend to have exceptionally high proportions of highly qualified, on-market renters.

At the other extreme, markets that tend to have higher home ownership rates, such as Houston, and metros that were particularly hard hit during the housing bust and foreclosure crisis, including Cleveland and Detroit, have lower shares of renters who report both strong credit and high incomes.

‘When faced with hurdles of high prices and low inventory, first-time homebuyers are renting longer than ever before even if they are qualified to buy,’ said Zillow chief economist Svenja Gudell.

‘San Jose, San Diego and Seattle are among the most competitive places for buyers, and the going isn’t any easier for renters as they are competing against throngs of financially sound applicants with strong credit and high incomes. This is a conundrum for many young people who move to those cities because of their strong job markets, only to find tight inventory and steep competition standing between them and their dream home,’ Gudell added.

The top 10 metro areas highlighted in NAR’s study were all outside of the West Coast and each had a share of renters who qualify to buy that was well above the national level of 28%.

Top is Toledo in Ohio and Little Rock in Arkansas both with 46%, followed by Dayton in Ohio at 44%, Lakeland in Florida, St. Louis in Missouri and Columbia in South Carolina all at 41%, Atlanta at 40% and then Columbus in Ohio, Tampa in Florida and Ogden in Utah all at 38%.

According to Yun, it’s no surprise that many of the markets with the most renters qualified to buy are in the Midwest and South. The median existing home sales price in these two regions continue to be lower than the Northeast and West, and while many of these areas were slower to recover from the recession, improvements in their local labour markets in the past year have pushed their hiring levels to at or above the national average growth rate.

‘Overall housing affordability and local job market strength play a pivotal role in a renter’s decision on whether to buy a home or sign another lease. The good news is that other recent NAR survey data shows that those residing in the two regions were the most likely to say that now is a good time to purchase a home,’ Yun explained.

‘With mortgage rates now at their all-time low, these identified markets are well suited for the many renters financially capable and interested in taking advantage of the stability and wealth building benefits owning a home can provide,’ he added.