Economy gains, yet housing spirals downward
Homeownership rate may fall to ’80s levels
SAN FRANCISCO — The desire to own your own home, long a bedrock of the American Dream, is fast becoming a casualty of the worst housing downturn since the Great Depression.
Even as the economy began to fitfully recover in the last year, the percentage of homeowners dropped sharply to 66.4 percent from a peak of 69.2 percent in 2004. The ownership rate is now back to the level of 1998, and some housing specialists say it could decline to the level of the 1980s or even earlier.
And today, the most widely watched housing index is all but guaranteed to show prices of existing homes sank in March below the lows reached two years ago — until now the bottom of the housing crash. In February, the Standard & Poor’s/Case-Shiller index of 20 large cities slumped for the seventh month in a row.
Housing is locked in a downward spiral, analysts say, not only because so many people are blocked from the market — being unemployed, in foreclosure, or trapped in homes that are worth less than the mortgage — but because even those who are solvent are opting out.
“The emotional scars left by the collapse are changing the American psyche,’’ said Pete Flint, chief executive of the housing website Trulia. “There was a time when owning a home was a symbol you had made it. Now it’s OK not to own.’’
Trulia, a real estate search engine for buyers and renters, is a hive of renters, including Flint.
“I’m in no rush at all to buy,’’ he said. He expects homeownership to decline further to about 63 percent, a level the country first achieved in the mid-1960s.
The market signaled further trouble on Friday, when the April index of pending deals was released by the National Association of Realtors. Analysts had predicted the index, which anticipates sales that will be completed in the next two months, would be down 1 percent from March. It plunged 11.6 percent.
“There’s no question that people are reticent to own,’’ said Douglas C. Yearley Jr., chief executive of Toll Brothers, a builder of high-end homes. “They’re renting, and they’re happy renting because they’re scared.’’
Yet those fears will fade, he predicted.
“Most people still want the big house with the big lot in the desirable school district in the suburbs,’’ he said.
Yet buyers are staying away despite the lowest interest rates and the highest affordability levels in many years, which in turn prompts others to hesitate.
The sharp decline in prices since 2006 has meant a lost decade for many owners. But what may prove even more discouraging to potential buyers is academic research showing the financial rewards of ownership were uncertain even before the crash.
In a recent paper, a senior economist at the Federal Reserve Bank of Kansas City found that the notion that homeownership builds more wealth than investing was true only about half the time.
“For many households in many years, renting and investing the saved cash flow has built more wealth than homeownership,’’ the economist, Jordan Rappaport, concluded.
And a house is a long-term commitment many are loath to make in uncertain times.
“What I’m hearing from people is that they don’t want to be tied to a particular geography, which inclines them to renting,’’ Flint said.
San Francisco is one of the most expensive US cities, so renting has a natural appeal. But Associated Estates Realty Corp., which owns 13,000 apartments in the Midwest and Southeast, also is seeing more renters.
“We have more of what we call ‘renters by choice’ than I’ve seen in the 40 years I’ve been in the apartment business,’’ said Jeffrey I. Friedman, the company’s chief executive.
For decades, the company has asked tenants why they were moving out. During the housing boom, as many as a quarter said they were buying a house. In 2009, the percentage of new owners fell in the first quarter to 13.7 percent, the lowest ever.
Last year, as the economy improved, the number rebounded. This year, it fell to 14 percent.
Builders clearly believe that the future includes many more renters. So far this year, construction of multiunit buildings is up 21 percent, compared with 2010, while single-family homes are down 22 percent. Sales of new single-family homes are lower than any time since the data were first kept, in 1963.