Call it the Big Selloff—America is headed toward a future in which fewer people own the spaces they call home. The effective homeownership rate , which excludes borrowers whose homes are underwater, stands at 62 percent, down from 69 percent in 2006, according to a 2010 report by the New York Federal Reserve.
As more people move from owning to renting, apartment vacancy rates have fallen fast, from 8 percent in 2009 to 5.6 percent in third quarter 2011. That’s pushed up rents in all markets by 2.5 percent, including apartments and single-family homes, to an average of $846 nationwide, according to Local Market Monitor, a home price forecaster. For a two-bedroom dwelling, the average rent was at $1,020 in June 2011.
Those trends are just the beginning, concludes a July report from investment bank Morgan Stanley: the United States is becoming a nation of renters and home ownership will keep falling. And that, say some experts, could be good for the country.
This dramatic change, triggered by the 2008 housing collapse, has shifted people’s views of home ownership. The number of those who consider a home a safe investment fell from 83 percent in 2003 to 66 percent this year, according to a survey by Fannie Mae and two other organizations. In another poll last April, commissioned by real estate data firms RealtyTrac and Trulia, 40 percent of renters questioned said they plan never to buy a home. Another reason—baby boom retirees who don’t want the burden of home repairs, rising property taxes and other responsibilities.
Honey and Bryan Stempka, 36 and 31, are among the new skeptics of ownership. The couple bought a three-bedroom house in Mankato, Minnesota in 2008 for $145,000. They renovated three rooms, repainted, re-landscaped, made energy-saving improvements, and paid ahead on their mortgage, cutting their repayment time to 28½ years from 30. But earlier this year the Stempkas decided to move to northwestern Pennsylvania to be closer to family. Just one problem—the Minnesota house won’t sell. In a neighborhood surrounded by foreclosures, it’s been on the market for 8 months for $139,900, and the Stempkas are thinking of dropping the price by $20,000. Honey Stempka says she never wants to own again: “I struggle with that. I have this vision of having my own space for a garden. But I regret buying our house.”
Laura Seitz, 60, is another former homeowner who doesn’t want to own again. She bought her house in west Los Angeles in 1998. But last year a burst pipe in the house caused $18,000 in damage and she lost her job, so she decided to sell. Living in a desirable neighborhood helped her—she got 10 percent more than the asking price. Even so, she says that “the burden of owning and caring for a home as a single woman was weighty, much more than I had anticipated.” Now she rents in the same neighborhood and says, “it’s a great feeling to be liberated.”
She may be onto something: many experts now challenge the conventional wisdom that owning is a necessarily a sound life choice. Forbes contributor James Altucher argues that buying a home is a trap—houses are illiquid investments that drain their owners’ time, energy, and cash and force them to stay put. Another skeptic is Yale economist Robert Shiller, co-creator of the Case-Shiller Home Price Index. He compiled data in 2006 showing that between 1890 and 2004, the return on investing in houses was just 0.4 percent a year—a period when the stock market grew at 9.6 percent annually. And in a paper this June in the journal Real Estate Economics, two researchers calculated that over the past 30 years, most often it would have been better to rent than buy. Renters who invested in stocks and bonds instead of home equity came out ahead 75 percent of the time.