More Americans decide to rent despite better home affordability

February 08th, 2011

Reports by the U.S. Census Bureau and the National Association of Realtors (NAR) indicate fewer mortgages are part of families’ new housing decisions. The philosophy of homeownership has also changed in the past few years following the collapse of the housing bubble. Mortgage calculators are showing home ownership is at the most affordable levels in several years, however affordability is not necessarily converting home seekers into home buyers.

More Americans decide to rent

Riding the housing bubble and readily available mortgages home ownership rose until the end of 2005 when 69 percent of households were owner-occupied homes, i.e. home owners, according to the U.S. Census Bureau. Following the housing bubble came the foreclosure wave that began in 2007 and has risen annually through 2010. In 2009 the percentage of households that owned their own home had dropped to 67.2 percent, mostly due to foreclosures forcing families out of their homes.

According to the Census Bureau homeownership declined even further in 2010, to 66.5 percent of households, the drop however was not due to foreclosures. According to the report the number of owner occupied households dropped by just 30,000 in the 4th quarter of 2010 compared to the same quarter in 2009. During that same period 1.1 million renters were added to the housing markets.

According to the National Association of Realtors the number of households that own their home has remained fairly constant at around 75 million households, however because of the rise of renters the percentage of home owners has declined.

So while the total number of households in the United States has increased in the past year, the number of new households getting mortgages versus leases has declined.

Not necessarily looking for a return on investment, more families are making the decision to purchase or rent based upon their family needs and abilities. With the tighter qualifying guidelines for mortgages and the lesson from the housing bubble expansion and collapse, many families are deciding that renting is better for their situation.

Cash

In 2008 when the National Association of Realtors began tracking the number of financed versus all cash purchase transactions, the percentage of cash transactions was 14 percent. In 2010, NAR reports 28 percent of all sales nationally were all cash. No need to use a closing costs calculator if you are paying all cash, your down payment is 100 percent.

Across the country some major markets have seen tremendous spikes in cash transactions for home buyers. In Miami-Fort Lauderdale over half of all transactions were cash deals, fueling a 15 percent increase in prices in downtown Miami. Phoenix has seen the number of cash buyers triple since 2008 to 42 percent of transactions in 2010.

A considerable number of the cash transactions are due to buyers purchasing foreclosures on court house steps, transactions that require cash and no financing. However even the increase in foreclosure purchases cannot account for the rise in cash transactions.

The housing and mortgage industries have seen many changes in the past three to four years. Not only have prices and rates dropped dramatically, but so has motivation to be a home owner and the desire to finance that decision with a mortgage.

Mortgage calculators have helped families with their decision to rent or buy, weigh your financial abilities, family needs and local real estate markets for your family’s future.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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