Takeaways:
- Poor-performing housing markets — in terms of year-to-year price appreciation — are likely to see the highest volume of renters who plan to buy.
- Despite better-than-average home value increases, a number of renters in select metros plan to buy.
- Millennials will comprise a significant portion of buyers in poor-performing markets moving forward.
Roughly 4.9 million renters, or 11.4 percent of all renters, plan to buy a home in the next year.
In comparison, at the beginning of this year 5.1 million renters, or 12.1 percent of all renters, planned to purchase a home during 2015, according to Zillow’s Housing Confidence Index.
“The housing market is slowing down, and Americans’ confidence in the future of the market is understandably fading a bit, too,” said Dr. Svenja Gudell, chief economist at Zillow.
Despite this, there are a few large metros — Philadelphia, Washington, D.C., Chicago, Phoenix, Denver, Miami and Tampa — where a noticeable percentage of renters intend to buy soon.
These metros are a mixed bag — with some having experienced minimal or negative year-to-year home value growth and others experiencing overall price appreciation that exceeds the national average.
Metros with marked slowdowns in price appreciation are viewed by renters as affordable markets primed for a home purchase. At the same time, these markets are also seeing rapidly rising rents and have a wave of upcoming multifamily deliveries still on the horizon — two factors likely pushing renters to buy.
Millennials comprise a significant portion of potential buyers in these markets during the next 12 months.
In Philadelphia, 23 percent of 18- to 34-year-olds intend to buy a home by the same time next year. Overall, 18 percent of renters in this market plan to buy within a year. In the past 12 months, home values have risen by only 0.1 percent in the market.
In D.C., home values have dropped by 0.7 percent spanning the past 12 months, making this market attractive for first-time buyers. Roughly 16 percent of renters surveyed said they would buy in the nation’s capital soon.
Home values in Chicago and Phoenix have risen on a year-over-year basis by 2.6 percent and 4 percent, respectively. As a result, 14 to 15 percent of renters plan to buy in these cities.
Roughly 20 percent of renters in both Tampa and Miami expect to buy by mid-2016, this despite year-over-year increases in home values of 6.4 percent and 8.9 percent, respectively.
Denver, which tops the list in terms of year-over-year value increases at 13.9 percent, also has a renter base that is relatively anxious to buy (15 percent).
On the other hand, rising home prices in some markets are driving renters away from homeownership aspirations. Zillow points out that millennials are dialing back their plans to buy in “red-hot” tech markets like Seattle, San Francisco and San Jose.
Only 2 percent of renters surveyed in Seattle plan to buy soon — the lowest percentage of the top 20 metros. The market has seen a year-over-year increase in home values of 6.6 percent.
In San Francisco, home values were up 11 percent year over year, and only 5 percent of millennial renters surveyed said they plan to buy. Of all renters in San Francisco surveyed, 46 percent said it was a bad time to buy.
Year-over-year appreciation of 11.5 percent has turned some San Jose renters off from buying, as only 5 percent said they would buy in the next year.