For many young adults priced out of the housing market, long-term rentals have become the new starter home. That's an opportunity for the home-furnishings industry. By Sabrina Escobar
Lowe Saddler has been saving up to buy a house in the Los Angeles area, but with the median home price around $1 million, owning property seems like a distant dream. So, she has chosen the next-best option: becoming a long-term renter.
Saddler, an editor focused on lifestyle topics, has plenty of company all across the country. High home prices and forbidding mortgage rates have made long-term rentals the preferred solution in recent years for many young professionals. As a result, the number of housing units occupied by renters is at the highest level since at least 2000, and growing at a faster rate than homeowner households.
The number of renter households grew 2.7% in the 12 months through this year's second quarter, compared with almost no growth in homeowner households. Today's young adult is less likely to own a home than in the past, with the median age of a first-time buyer rising to a record 38 in 2024, according to the National Association of Realtors.
The surge in rentals, abetted by a post-financial-crisis boom in multifamily construction, is both a challenge and an opportunity for the home-furnishings industry. Furniture purchases are often tied to buying a house, and buyers historically have spent more than renters on furniture, says Jerry Epperson, CEO of furniture research firm Epperson Consulting.
But many young renters are now treating rental properties like starter homes, creating a growing market with needs that are different from the traditional furniture shopper. Saddler, for one, has spent thousands of dollars on renovations to her one-bedroom apartment, repainting walls, changing light fixtures, and adding wallpaper, shelves, and cupboards -- and documenting the transformation on social media.
Most furniture companies have suffered due to the U.S. housing crunch. Sales at furniture and home-furnishings stores fell 2% year over year in 2024, following a 3.5% decline in 2023, according to data from the Census Bureau. That has weighed on the shares of companies such as Ethan Allen Interiors, Arhaus, RH, and La-Z-Boy, all of which underperformed the S&P 500 index's 14.5% advance in the past 12 months.
Retailers that cater effectively to young renters, such as Wayfair and Williams-Sonoma, which owns Pottery Barn and West Elm, have bucked the negative trend. Both companies have grown sales in an otherwise sluggish market, and been rewarded by Wall Street. Wayfair's shares shot up 53% in the past year, and Williams-Sonoma's, 30%, and analysts see more gains ahead.
Renters shop for furniture differently than homeowners, according to industry watchers. Owners tend to prioritize quality and cohesion, and often invest in furnishing multiple rooms. Renters are more pragmatic, typically buying single items at low to midlevel price points from multiple vendors.
Many approach home furnishing like Kate Lewis, 27, whose New York City apartment has been furnished with a combination of secondhand items upcycled from Facebook Marketplace, decor purchased from mass-market retailers, and investment pieces made by high-end furniture brands. Most of her furniture is easy to repurpose, resell, or move from one apartment to another, Lewis says.
Like Saddler, she has invested time and money in personalizing her rental. That, too, is a growing trend.
This mentality has been a boon to Wayfair and Williams-Sonoma, which have long served renters' needs by selling smaller-size, multifunctional furniture and home accessories at a variety of prices, and providing a well-oiled online shopping experience. Saddler and Lewis say they are customers of both, among other vendors.
Wayfair has tailored some of its shopping experience to younger customers working with small spaces, who often tend to be short on time and have a tighter budget, said Paul Toms, Wayfair's chief marketing officer, in an interview with Barron's. The company's website allows shoppers to filter for size and price, and has thousands of multiuse products, from foldable tables to pullout couches with built-in storage.
Wayfair's marketing strategy has evolved to resonate with younger customers, and includes collaborations with interior-design influencers, Toms says.
Williams-Sonoma focuses on a curated experience, and its West Elm brand, defined by modern designs that can be tailored to smaller spaces, has been particularly effective at breaking into the high-end millennial and Gen Z market. West Elm's same-store sales have grown by 41.9% since 2019; the brand accounted for just under a quarter of Williams-Sonoma's $7.7 billion of revenue in the fiscal year ended in February.
"Williams-Sonoma has done an exceptional job of acquiring millennial shoppers, which bodes well for outsize long-term growth and share gains, " wrote Max Rakhlenko, an analyst at TD Cowen, in a recent note.
Shares of Wayfair and Williams-Sonoma both surged earlier this year, along with other housing-related stocks, on the expectation that the Federal Reserve would cut interest rates, leading to a drop in mortgage rates. The rally has since lost steam, partly because the Fed didn't cut rates until September, and because new tariffs on lumber and furniture could raise prices for construction and furnishings, and dampen homeowner demand.
President Donald Trump slapped a 25% tariff on certain imported upholstered wood products, and threatened in a late-September Truth Social post to impose further "substantial" tariffs on any country that doesn't make furniture in the U.S. Certain lumber and furniture tariffs took effect this week.
Williams-Sonoma and Wayfair aren't fully insulated from the impact of tariffs, as both sell imported as well as domestically made products. Even so, they are "best positioned to outperform," due to their scale and ability to control tariff-related margin erosion by cutting costs or expanding on alternative revenue streams, Jefferies analyst Jonathan Matuszewski wrote recently.
Matuszewski cited Wayfair's budding sponsored-ad business, which emulates Amazon.com's ad business by allowing vendors to pay for better visibility. Moreover, Wayfair doesn't import most of its products; vendors do, and they are paying the tariff. That should alleviate some pressures on Wayfair's gross margin, wrote Phillip Blee, an analyst at William Blair.
A "good chunk" of Williams-Sonoma's upholstered furniture is made in the U.S., executives said on the company's second-quarter earnings call, and there are plans to expand domestic production. The company's enhanced push into merchandise such as linens, decor, and utensils, which aren't subject to furniture tariffs, could also soften the tariff impact.
In July, the stock's average analyst rating turned to Overweight for the first time since 2016, according to FactSet. Williams-Sonoma didn't return Barron's requests for comment.
At a recent $190 a share, Williams-Sonoma trades for 22 times expected 12-month earnings, below the S&P 500's price/earnings ratio of 23. Annual sales are expected to rise by 2% during this fiscal year, although earnings could slip 2%, largely due to tariffs.
Most analysts also rate Wayfair Overweight, but the stock may be a riskier bet than Williams-Sonoma, given its lofty P/E. Wayfair trades at about 38 times the $1.91 a share in adjusted earnings that analysts expect it to post this year.
"The company has done everything that the Street has asked for over the past few years -- namely, improve gross margin, reduce overhead, and, as of the second quarter, deliver stable top-line growth," Blee wrote in a note in early October. "Based on intra-quarter trends, we believe a lot of the momentum has continued into the third quarter."
Another company that has appealed successfully to young renters is Meta Platforms, through its Facebook Marketplace business. Although Marketplace is a tiny contributor to Meta's overall revenue and profit, it has quietly grown into one of the world's largest resale platforms, largely driven by younger consumers. Analysts see untapped monetization opportunities through advertising and sponsored posts.
In a housing market defined by high costs and scarcity, the rental unit has become a new center of gravity. Until structural dynamics shift in favor of homeownership, the long-term renter isn't a fallback but instead the future for savvy furniture companies and their investors.
-- Shaina Mishkin contributed to this article.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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October 17, 2025 21:30 ET (01:30 GMT)
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