More Americans Are Renting, and Paying More, as Homeownership Falls By Dionne Searcey
WESTFIELD, N.J. — To Johnnie McDowell, the house on Livingston Street seems to taunt him every time he walks by. It’s nothing special: The two-story home is a bit shabby, and it’s been on and off the market in recent months without finding a buyer. Still, he cannot stop dreaming of a better life for his family as he imagines the extra space inside and his children and dog playing outdoors once he weeds the yard.
The McDowell family, however, remains squeezed into a rental apartment: a single floor of an oddly configured duplex that Mr. McDowell has fashioned into three small bedrooms for himself, his wife, Takiba, and two children. With a monthly rent of $1,400, car payments, unpredictable family expenses, a spotty credit report and an empty savings account, Mr. McDowell sees no way to soon pull together a decent down payment.
Donald and Linda Potter still carry mortgages on their home and vacation house, but say the math makes sense with low rates.
“My wife and I have been wanting to go on the market to buy a house for years now,” Mr. McDowell, 41, said. “But bills, bills, bills and car notes and car insurance. We haven’t been able to save anything.”
In the past, many families like the McDowells, whose household income is almost $100,000 a year, would already be nestled in a starter home, maybe even on the cusp of upgrading to something bigger and more expensive on the profits from their first house.
But even as the market continues to improve — sales of existing homes in May increased to their highest pace in six years, the National Association of Realtors reported on Monday, and first-timers make up 32 percent of the buyers — it is leaving millions of Americans unwillingly stuck in rental housing.
“It’s more of a new normal,” said Robert J. Shiller, an economics professor at Yale University and a Nobel laureate. “We went through a wrenching experience with the biggest housing bubble and the biggest collapse since 1890. This is an anxious time.”
The nation’s homeownership rate has been falling for eight years, down to 63.7 percent in the first quarter of this year from a peak of over 69 percent in 2004, according to a new report released on Wednesday by Harvard University’s Joint Center for Housing Studies.
The flip side of the decline in homeownership is a boom in rentals and a significant rise in the cost of renting. On average, the number of new rental households has increased by 770,000 annually since 2004, the center’s report said, making 2004-14 the strongest 10-year stretch of rental growth since the late 1980s.
Many people living in rentals were once owners; they lost their homes to foreclosure and now have such damaged credit reports that they find it nearly impossible to qualify for a mortgage. Others are trapped because lenders have significantly tightened credit standards after the abuses of the boom era.
And while the federal government has created programs to encourage lenders to offer mortgages requiring only a small down payment, the efforts are so nascent that officials won’t say how many people have taken advantage of them.
Apart from the hangover from the housing collapse and the worst economic downturn since the 1930s, the nation’s changing demographics are also causing a major shift in housing trends. For instance, a majority of new households expected to be formed in coming years will consist of people with a minority background. Historically such Americans have had lower incomes and fewer assets and were less able to buy homes, according to the Urban Institute.
At the same time, millions of young adults who normally would be first-time home buyers are still struggling to find decent jobs; many are also putting off marriage and having children, a trigger for home buying. They are also more likely than previous generations to be saddled with heavy student loan payments that hurt their ability to save for a down payment.
But it is not just younger people who are having trouble owning a home. According to the Joint Center’s report, that rate dropped the fastest for people in their late 30s to early 50s. These people were in their prime home-buying years right before the recession; when housing prices plummeted, they were left with little or no equity.
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