The Role of Rentals in the Housing Market: The Lengthening Bridge to Homeownership

In recent years, the U.S. rental industry has evolved from being a secondary segment of the housing ecosystem to a key player in the broader market, as an increasing number of people are renting longer. This shift, propelled by economic factors and changing consumer preferences, is reshaping the housing landscape with fundamental implications.

The rental market’s prominence has surged as home prices continue to rise and affordability challenges persist, particularly for first-time homebuyers. The U.S. had more than 22 million renter households in 2024, marking a significant jump in demand over the past five years, according to the Joint Center for Housing Studies at Harvard University. As homeownership remains out of reach for many, renting is the only viable option for a growing number of people for a longer period. As of December 2024, the median existing-home price in the U.S. reached $406,700 — up 5.8 percent from the previous year — while mortgage rates for a 30-year fixed-rate loan have remained around 7.5 percent, according to data from the National Association of Realtors (NAR).

This surge in rental demand has brought forward a critical issue: As rental demand rises, it also creates a distinct impact on the for-sale market. 

“Renters, especially millennials and Generation Z, are delaying homeownership due to factors like rising mortgage rates and escalating home prices,” according to Lawrence Yun, chief economist at NAR. “This delay in homeownership is creating a more competitive rental market, which in turn is further fueling the demand for affordable rental properties.”

Data-driven insight into rental trends
Nearly 30 percent of all real estate searches now involve rental listings, according to data from Zillow, evidence of increasing consumer demand for rental properties as a primary housing option. This growing interest has a ripple effect on the broader housing market, especially as inventory for both rentals and homes for sale remains constrained. Between 2020 and 2024, the number of available rental units decreased by 12 percent, a trend that has exacerbated the already low housing supply in general, according to research by the U.S. Census Bureau. 

This has helped fuel stubbornly high rents. The median rent for a U.S. apartment climbed 5.2 percent year-over-year to $1,734 in 2024, according to data by Realtor.com. With these rising costs, renters are now spending on average 30 percent of their income on housing. Surprisingly, these high rent burdens are also contributing to the stagnation in the for-sale market, as many renters are unable to save for a down payment, thus further delaying their transition into homeownership. The average age of first-time home buyers in the U.S. is currently 38, up from 35 in 2023, according to NAR. 

Bridging the gap between renters and homebuyers
Renting has usually been viewed as a way to save for a future down payment while securing a stable place to live. In spite of headwinds, about 38 percent of renters still plan to eventually buy a home, with 60 percent of them citing financial preparation as their main barrier, according to a 2023 survey by Bankrate. Many renters are turning to longer-term rental contracts as they wait for the right moment to enter the housing market.

This trend highlights a shift in market dynamics. As renters remain in the market for a longer period, their delayed entry into homeownership is preventing a more fluid transition between the two markets. 

“This isn’t just a rental issue; it’s a systemic housing issue that’s impacting the entire market,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR. “There is a direct link between rental demand and homebuyer behavior, which ultimately affects supply and demand throughout the housing market.”

Where the rental market will be particularly relevant
Not surprisingly, the trajectory of the rental market will be particularly important in high-demand urban areas and regions with limited housing inventory. Cities like New York, San Francisco and Los Angeles, where rental demand has already exceeded supply, will continue to feel the pressure. In these cities, a lack of affordable housing options are prompting more renters to hold off on buying homes, further tightening the market.

Additionally, the changing face of the workforce, with more people working remotely or adopting hybrid work models, is contributing to shifting demand for both rental and for-sale properties. As remote work offers more flexibility, renters are also becoming more prevalent in suburban areas or less densely populated regions where rents are more affordable but where the long-term prospects for homeownership are also more promising.

Suburban areas saw a 9 percent year-over-year increase in rental listings as people migrate out of more expensive urban centers, according to data by Redfin. 

“These shifts are shaping a new housing reality where the rental market and for-sale market are intertwined,” says Daryl Fairweather, chief economist at Redfin. “The demand for rental properties in suburban areas is fueling growth in both markets, as renters transition into homebuyers when the time is right.”

Whether it is in urban centers or more suburban areas, rentals are playing a larger role in the U.S., with more individuals staying in rental properties longer due to economics and lifestyle changes. As renting further develops into a longer-term solution for many, the rental market is likely to continue to grow in importance and competitiveness.

Michael Lucarelli is the CEO and co-founder of RentSpree.