Many Big-City Renters Earn Enough to Buy

SEATTLE, Aug. 12, 2016 /PRNewswire/ -- Across the country's largest rental markets, almost 14 percent of on-market 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. That means people who could afford to buy are renting instead, increasing competition for limited available homes for rent, according to an analysis of financial qualifications reportedⁱ via the Zillow® Renter Profile feature. 

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 scoresⁱⁱ and incomesⁱⁱⁱ 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^iv.

There are also 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 homeownership, such as finishing their education and starting families.

In general, markets with lower homeownership rates have higher proportions of on-market renters with both strong credit and high incomes. That said, even when controlling for the homeownership 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 homeownership 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 Dr. 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."    

Renters can use Zillow's Renter Profile to create a personal profile outlining their unique qualifications such as income, credit score, and employment references. Renters create the profile just once, and can share it quickly and easily with landlords and property managers.

About Zillow
Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ:Z and ZG), and headquartered in Seattle.

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ⁱ On-market renters are actively searching for a rental unit. The data does not necessarily reflect the full spectrum of renters, only those who have created profiles on Zillow through mid-2016, but is still likely capture an important segment of the rental market.
ⁱⁱ Renters with a self-reported credit score of 700 or higher were classified as financially strong rental applicants. Renters with a self-reported credit score of 699 or less were classified as financially weak rental applicants.
ⁱⁱⁱ Renters with self-reported monthly income equal to or greater than the monthly income necessary to afford the typical rental in the metro area were classified as higher income renters. Those reporting a monthly income below this amount were classified lower income renters.
^iv Zillow calculated the income necessary to afford the typical rental or median home in the metro area using the Zillow Home Value Index, Zillow Rent Index, and Zillow's Rent Affordability data.
^v Zillow Home Value Index (ZHVI) is the monthly median home value in a particular geographical region, last updated in Zillow's June 2016 analysis.

SOURCE Zillow

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