Survey says: Home-ownership has lost its luster
Published: July 30, 2010
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Job insecurity, rigid lending controls and a turbulent housing market have created uncertainty about whether to rent or buy a home for many people embracing the American dream of home ownership. But has home ownership lost its appeal?
Maybe.
According to the National Apartment Association (NAA), renting a home now trumps home ownership. A recent survey showed 75 percent of more than 2,100 consumers polled agree that renting is best right now, up five percentage points from 2008. The NAA sees unemployment, which continues to hover around 9 percent, together with financing challenges as some of the factors supporting that conclusion.
“The market has definitely changed because many, many people are foreclosed on and they can’t buy any longer,” says Cesar Gonzalez, owner of Pocono Premiere Realty, Swiftwater, Monroe County. “They can’t purchase for a minimum of three years after a foreclosure appears on their credit. Actually, (renting) is their only option.”
In addition to fallout from recent financial fiascoes, many see other benefits to renting, including not being responsible for real estate taxes, community dues fees and home repair costs.
“We also get a lot of rentals from people in this area that are just here for temporary assignments, from Sanofi and the casinos,” says Gonzalez. “It’s much easier for a tenant to pick up and go than a homeowner. When they want to move, they can simply give their 60 days and move. They don’t have to place their house on the market in a market where houses aren’t selling. And then if they own and they decide they have to move, they have to wait for the house to sell, which in this market, they are not selling fast at all.”
One reason for slow sales rests with the inability to secure financing, in part from challenges to come up with the money for a downpayment and low credit scores.
“Banks are not lending as easily anymore,” says Gonzales. “You need a higher credit score to buy. You need more money down to buy than you used to need. To get a conventional mortgage, you have to have a 720 score and 20 percent down for the most part, unless you are buying a first-time home.”
According to the National Foundation for Credit Counseling, a recent survey showed 49 percent of those polled believed they would never be able to save enough money for a downpayment. Twenty percent believed they would need a loan allowing a much lower down-payment and 18 percent would have to borrow the down-payment regardless of how much lenders require.
“It’s definitely gotten tougher over the last year to qualify for a mortgage,” says Donna Ruffino, owner of Weichert Realtors Ruffino Real Estate, Milford, Pike County. “They have tightened the standards. Because of inflation and the economy, people don’t have savings to buy a home. On the good side of all of this, there are still some low- and no-down-payment government loans. There are options out there.”
Those options include FHA financing which may require only a 3.5 percent down-payment or rural housing loans offering 100-percent financing for people with higher credit scores and lower debt-to-income ratios.
“In order to finance a house — I don’t care how low the price is or attractive the interest rates are — you have to have a job and you have to be fairly confident with maintaining that job,” says Todd Behr, professor of economics at East Stroudsburg University‘s College of Arts and Sciences. “The labor market is very, very weak right now and there are some economists who are speculating on the possibility of a second recession coming along. If that’s the case, that would make short-term prospects for the housing market even more pessimistic.”
Economic pundits predict no dramatic improvement over the next year in the labor or housing markets but expect a slow rebound for jobs.
“The economy is rebounding a little bit in the short run,” says Behr. “Businesses haven’t been hiring workers the way they have in the past. One major reason is because productivity is so strong so you don’t need as many workers. So if the economy gets any kind of tracks and starts to increase at some point, the labor market will have to improve.”
Behr also believes federal policies with agencies such as the Federal Housing Administration could generate more home sales.
“A number of federal policies such as policies of the Federal Housing Administration are designed to deal with people who don’t have the ability to make that 20 percent down payment that used to be considered a traditional benchmark,” he says. “To the extent that the government comes back and tends to support those lower downpayments — not that I support that — that would further support the housing market. I don’t necessarily think the government should do that. You can get in a lot of trouble going in too far, supporting applications (for those) who shouldn’t be taking out a loan to begin with.”
Despite uncertainty surrounding future federal policies, most industry observers believe the American dream for home ownership remains intact.
“By terms of home ownership, Americans by nature are very loving,” says Pattabiraman Neelakantan, Ph.D., professor of economics at East Stroudsburg University’s College of Arts and Sciences. “We love our homes, our landscaping. In that regard — the appeal for the home ownership — I don’t think it has been lost.”
Although a weak job market, strict financial guidelines and a turbulent overall economy has dampened enthusiasm, the long-term outlook remains optimistic.
“I think that most of the cooling down effect has already taken place,” says Neelakantan. “We see a weak housing market through this year and maybe even a good part of the next year. There will be some small declines, probably until the middle of next year, and then the buyers will start jumping in. When they see the prices are attractive, more buyers will enter the market.”
During that transition, Neelakantan sees apartment rentals as an attractive alternative for those who will eventually look to purchase a house or a home. While owning a house temporarily may have lost its appeal, the appeal for a home remains strong.
“It was that whole psychology that houses become a stock, a commodity, because the media trumpeted these stories of making crazy appreciation of value, that it was better than being in the stock market,” says Kent Hatter, broker with RE/MAX Five Star Realty, Orwigsburg, Schuylkill County. “That’s not a home. A home is a shelter, a sense of community. If anything it’s a long-term investment that when people retire it typically is a very large chunk of their retirement assets. But if you look at it on such a short term, that’s not what a house is. Everybody was playing it like we can make tons of money in real estate in a real short period of time.”
Hatter believes purchasing property as a long-term investment rather than a short-term windfall opportunity will create the continuing desire and demand for homeownership.
“Life issues are going to creep up when you least expect it,” says Hatter. “For the advantage of home ownership, take your time. If you can afford $100,000, buy at $80,000. If you’re leveraged to 100 percent or more, then it makes things tough. But if you have a little cushion, you can weather it.”
