US increasingly shuns home ownership to rent

WASHINGTON?? Builders starting on new apartments are busier than ever these days as demand for rentals climbs and the once-sacrosanct American dream of home ownership fades.

The Commerce Department said Tuesday housing starts slipped 1.5 percent in July to a seasonally adjusted annual rate of 604,000 units. But starts on multifamily housing, often used for rentals, rose 7.8 percent to 179,000 units.

The rise in multifamily units reflects an underlying trend in which rentals are increasing while the national home ownership rate declines.

The percentage of people who own a home dropped to 65.9 percent during the second quarter ? the lowest since the first quarter of 1998. That was down from a peak of 69.2 percent reached in late 2004, according to the U.S. Census Bureau, when lax lending standards were fueling home sales.

The change appears to be gaining momentum.

"Even in cases where it might make more financial sense ? or it might actually be cheaper on a monthly basis to own a home rather to rent one, a lot of people are not making that purchase," said Oliver Chang, head of U.S. housing strategy at Morgan Stanley.

"The trend that we're on is going to continue," he added.

The home ownership rate is likely even lower than the Census Bureau reports, according to Chang and his team of analysts at Morgan Stanley.

The home ownership rate is only about 59.2 percent once mortgage delinquencies are factored in, something the government does not do, according to a research paper Chang co-authored with Vishwanath Tirupattur and James Egan.

"The combination of falling home prices, limited mortgage credit, continued liquidations and better rental options is fundamentally changing the way Americans live," according to the Morgan Stanley research report.

"We believe this change is only beginning and is moving the country toward becoming a rentership society."

Americans have started to sour on the idea of home ownership as tighter lending standards block potential borrowers from obtaining a mortgage, due to the boom and bust of the housing sector and subsequent 2007-2009 financial crisis.

More Americans have been driven to move into rentals. That has reduced the U.S. apartment vacancy rate, which dropped to 5.9 percent in the second quarter, the lowest since 2006, according to real estate research firm Reis Inc.

Some renters have no alternatives. About 3.8 million foreclosures were filed in 2010, and that could balloon to as many as 6 million by 2013, according to data firm RealtyTrac.

But analysts say renting can be a good choice.

"Housing can actually be a very risky investment if you look at the downturn," said Dean Baker, the co-director of the Center for Economic and Policy Research. "We should be talking about renting as a respectable option."

The White House wants to rent, sell or dispose of foreclosed homes controlled by mortgage finance giants Fannie Mae and Freddie Mac. The goal is to "bring stability and liquidity" to the housing market, said Edward DeMarco, acting director of the Federal Housing Finance Agency, in a statement.

President Barack Obama is looking to change the way housing is financed. The administration produced a blueprint in February that gave three separate proposals, all of which lead toward minimizing the government's role in the mortgage market over the next several years while at the same time attracting more private capital to fill the gap.

The White House stated in the policy paper that its goal was to "ensure that Americans have access to an adequate range of affordable housing options."

However, the administration cautioned that "this does not mean our goal is for all Americans to be homeowners." The papers pointed out 100 million Americans are renters, whether they do so by choice or necessity.

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Currently, Fannie Mae and Freddie Mac, along with the Federal Housing Authority, guarantee about 90 percent of all U.S. mortgages.

A recent survey by Fannie Mae shows more will choose to pay rents rather than buy.

"Dissatisfaction about the direction of the economy and related employment fears are damping demand to buy homes and slowing the recovery," Fannie Mae's chief economist, Doug Duncan, said in a quarterly housing survey. "People who believe owning is a better deal than renting are nonetheless planning to rent, at least until things improve."

At some future point, however, the dream of home ownership could be reignited among renters.

A recent study of 2,142 adults by the Pew Research Center indicated more Americans would prefer to own if they had the financial means. Just 24 percent of renters said they were doing so by choice, rather than necessity, and 81 percent believed that owning a home was the best long-term financial investment goal for their families.

Copyright 2011 Thomson Reuters. Click for restrictions.

Source: http://www.msnbc.msn.com/id/44164691/ns/business-personal_finance/

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