A Troubling Story: “The US has Become a ‘Renter Nation'”
A troubling story is playing out across they USA in the 10 years since the housing bubble peaked and burst in a horrific crash. As real estate has risen, homeowners are thriving and renters struggle.
For many longtime owners, times are good.
They are enjoying the benefits of growing equity and reduced mortgage payments from ultra-low interest rates.
But for America’s growing class of renters, rising costs, stagnant pay and rising home values have made it next to impossible to save enough to buy.
The possible consequences are grim, and painful for a nation already grappling with economic inequality. Whatever wealth most Americans possess mainly comes from home equity. An enlarged renter class means fewer Americans can build that same wealth and financial security.
Nearly 67% of adults still own homes.
Yet ownership has become a far off Dream for the many Americans who regard it as a route to prosperity and pride. The problem has become especially severe in areas that offer the best job prospects as well as those that have been battered by foreclosures.
An analysis of the census data covering over 300 US communities found that 2 major forces are driving a wedge between the fortunes of renters and homeowners:
Historically low mortgage rates have enabled homeowners to refinance and shrink their monthly payments, thereby reducing a major household cost. The median annual mortgage expense for a US homeowner has dropped by $1,492 since Y 2006.
A combination of foreclosures and new college graduates crowding into the strongest job markets has raised demand for rentals.
Renters accounted for all the 8-M+ net households the United States added in the past decade. Home ownership has dipped to 63.5%, near a 48-year low. That demand has driven up rents, which in turn have prevented or delayed renters from buying 1st homes.
The government says if you spend more than 30% of your pretax pay on housing, you are “cost-burdened.”
The total number of renters in that category has risen more than 30% in the past 10 years, to 21.2%. And 50% of all renters are now considered cost-burdened, compared with just 24% in Y 1960..
After the home bust, investors bought distressed houses in these communities at sharp discounts and rented them out. Many of the new tenants belong to Generation X households, ages 35 to 51 that began renting after the crash, according to the Harvard University Joint Center for Housing Studies.
The US census data analysis found a belt of stability across the Midwest where the housing boom and meltdown had little effect on home ownership. Rates of ownership remained relatively stable in Minneapolis, St. Louis and Kansas City, Missouri, where starter homes are comparatively affordable.
But the transformations have been very wide in other areas, particularly in smaller suburbs where much of the country lives.
Both before and during the housing boom, farmland around the country was bought cheaply and developed into houses, schools and shopping plazas, a build-out that ignited home ownership. Now many of those neighborhoods are occupied by renters living in homes whose former owners lost them to foreclosure.
Making that leap to home ownership is becoming harder for typical American renters.
The average 1st-time buyer makes $84,559, much more than the average household income of $75,037, that is the widest gap in over 15 years, according to an analysis by the online housing marketplace BildZoom
This closes one of the paths to accruing wealth.
On average, homeowners have a net housing wealth of $150,506, according to figures soon to be released by the Urban Institute Housing Instituet Policy Center.
That average climbs to $229,296 for those who own their homes free and clear, making the house an asset that provides a crucial financial cushion.
Just as the US economy failed 9 years ago, millennials began flooding the job market after college and graduate school.
The most educated tended to cluster in cities where jobs were plentiful, like Boston, San Francisco, and San Diego. They are renters paying historically high rents a result of too few apartments to meet demand and too few renters with enough savings to buy.
The opportunities are there for people who have money, or those who are already homeowners.
Americans refinanced $9.4-T of mortgage debt after the housing bubble burst, according to the Mortgage Bankers Association.
New mortgages at under 4% interest have freed up thousands of dollars annually for households in several metro areas, according to US Census figures.
What the housing recovery presented was a rare opportunity to capitalize on mortgage rates that had never dipped so low in a lifetime. But even while millions of renters struggle to save enough to buy, many such homeowners have never had it so good.
“They’re basically taking advantage of the changing economics of home ownership in ways that renters cannot,” said Andrew Jakabovics, senior director of policy and research at the affordable housing nonprofit Enterprise Community Partners.