America will not become a nation of renters

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Recent news reports indicate a growing trend of individuals and families opting to rent a residence as opposed to buying a home. This is probably a temporary, and not a long-term, trend.

Many of today’s prospective homebuyers are simply putting off their purchase of a home until the housing market further stabilizes. In the meantime, they are renting a residence. The great American dream is still to own a home.

We will not become a nation of renters. There are just too many benefits, both financial and otherwise, to own vs. rent, according to the combined findings of several recent studies presented during a “Buyer or Renter Nation?” session, sponsored by the National Association of Realtors.

During a 31-year period across 23 metropolitan areas, the studies compared the ownership benefits in terms of appreciation and interest deductibility and the costs homeowners incur with down payment, taxes, insurance and maintenance.

When it was assumed that renters reinvested any savings in rent (versus a higher monthly mortgage payment), maintenance and down payment, renters had a greater portfolio than buyers in 91 percent of the areas examined, the studies revealed. However, when the model allowed renters to spend any savings rather than reinvest those savings, 84 percent of buyers came out ahead.

“We knew that homeowners, on average, accumulate more wealth than renters,” said Ken Johnson, editor of the Journal of Housing Research. Johnson spoke at the session and conducted the analysis. “These findings indicate that homeownership is a self-imposed savings plan.

“Not everyone should own a home, but from a financial perspective people who are planning to stay in a property over the long term can benefit from buying,” he said.

Q: How important is housing as an issue in campaigning for next year’s national elections?

A: An interesting survey was recently taken by Move Inc., operator of several major real estate-related websites. It revealed that as Americans consider the best candidates for the 2012 presidential and congressional elections, housing is at the forefront of the debate for many.

About 70 percent of Americans say a candidate’s position on housing could sway their vote, according to the survey released by Move. However, Americans differ in their views of what the housing market needs most.

The survey found 30.9 percent of Americans believe the next president’s priority for his or her first 100 days in office should be helping homeowners avoid foreclosures.

Q: Does the current law permit jumbo FHA loans?

A: Yes, the president recently signed the bill reinstating jumbo FHA limits. Despite intense opposition, homebuilders and Realtors were successful in their lobbying efforts to pass legislation that keeps the government insuring jumbo mortgages, reported Mortgage Daily.

As a result of the legislation, the Government National Mortgage Association is expected to increase its market share.

Q: Are home sales increasing or decreasing?

A: Sales of existing homes increased by 13.5 percent in October compared with a year earlier. Sales would be even higher if contract failures and cancellations plaguing the loan application process could subside, according to a report from the National Association of Realtors.

Total existing home sales – including single-family townhomes, condominiums and co-ops – rose to a seasonally adjusted annual rate of 4.97 million units in October, compared with 4.9 million in September and 4.38 million a year earlier, NAR reported.

“Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales, such as job creation, rising rents and high affordability conditions,” said Lawrence Yun, NARs chief economist. “Many people who are attempting to buy homes are thwarted in the process.”

Q: Are business prospects looking better
for homebuilders?

A: Homebuilders are feeling more positive about their future prospects. In fact, builder confidence in the market for newly built, single-family homes rose in November to its highest level since May of 2010, according to a report from the National Association of Home Builders.

“While this second solid monthly gain on the builder confidence scale is encouraging, the overall measure remains quite low due to the many challenges that homebuilding continues to face with regard to the high number of foreclosures, the difficulties of obtaining construction financing and accurate appraisals and the restrictive lending environment that is discouraging potential buyers,” said Bob Nielsen, NAHB Chairman.

WOODARD has been writing about real estate news and trends since 1971 and is the resident storyteller at the Ronald Reagan Presidential Library in Simi Valley, Calif.