Dear Consultant

Dear Consultant: Can people still afford homes with high rates and increased inflation, or are they more likely to rent? 

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Ken Perlman Headshot

James Penner

Ken Perlman

June 5, 2024
Your questions, our expertise.

Can people still afford homes with the high rates and increased inflation, or are they more likely to rent? 

Are people still able to afford homes? It’s a big question with a nuanced answer.

Home affordability is near its all-time worst, making this one of the most challenging times historically to purchase a home. A typical home buyer today must spend more income on housing than ever before. 

Our Burns Affordability Index™ (BAI) shows that, on average, home buyers purchasing at today’s rates spend 44% of their income on housing. This is higher than the “new normal” of 33%, which reflects fundamental shifts in the housing market. 

We believe housing is permanently more expensive.

Affordability varies by market.

Purchasing a home is more challenging in markets like San Diego or Orange County, CA, where home prices are high and inventories are limited. With spiking mortgage rates, monthly payments rose by more than 60% between 2022 and 2023. With an influx of buyers seeking more attainable prices, markets like Dallas, Austin, Tampa, and Orlando quickly became Expensive or Very Expensive, according to the BAI. It’s no wonder our consulting team has been doing more work in the Midwest and more affordable southeast states in Oklahoma, Arkansas, or Alabama as buyers look for attainable opportunities.

Not everyone wants to own a home.

Rentership rates are the highest among younger households, with about 56% of households between the ages of 25 and 34 renting their homes. While many of these renters are future homeowners saving for a down payment, some consumers simply prefer to rent. A survey conducted by our New Home Trends Institute determined that more than one-third of renters cited life circumstances as a reason they rent. Other renters cited a lack of supply (they cannot find what they want), a need for flexibility, and a desire to not maintain a home as reasons why they rent. Our research into the build-to-rent (BTR) sector concluded that 47% of BTR tenants earn more than six figures annually and choose to rent for similar reasons.

There are solutions.

Those involved in the housing space are acutely aware that housing affordability is one of the market’s most substantial problems. Several of our consultants are at this week’s Housing Innovation Alliance conference in Denver, meeting with industry experts to determine how to create more attainably priced homes, particularly for younger buyers.

Last year, a JBREC survey of master-planned communities determined that 70% of MPC developers are focused on creating more attainably priced housing opportunities within their communities, including creating smaller lots and adding more attached products. We are seeing townhome, cluster, and cottage products in more suburban locations nationwide. Buyers are willing to trade some of their personal space, particularly for more affordable homes.

And don’t forget the huge wealth transfer that is coming. A recent survey we conducted of Gen Z determined that 42% of homeowners had received down payment assistance from their families.

Although this is the toughest environment in recent history, the pace of innovation in housing is accelerating, product design is evolving, and the path to homeownership could be on the horizon.

Our consulting team advises executives and leaders nationwide on the best solutions for their situations. You can find more information on our consulting and advisory services here.

Keep the questions coming! You can submit questions to Dear Consultant here or email us at dearconsultant@jbrec.com.

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About The Author

James Penner photo
James Penner
Senior Manager, Consulting
James is a project opportunity/feasibility expert who specializes in rental product (apartments and BTR) and Southeast markets.
Ken Perlman Headshot
Ken Perlman
Managing Principal
Ken works with real estate executives to help them make appropriate strategic decisions regarding their residential communities, including for-sale and rental of all types. He has a particular specialty in large-scale master-planned communities.

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Stay on top of consumer and design trends through exclusive insights gleaned from our proprietary surveys of consumers and industry professionals, exclusive members-only councils, networking opportunities, and curated partnerships.
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