Sandie Crisman sees the headlines hailing the US housing rebound and wonders when she will get her share of it. The 60-year-old Florida resident is one of the tens of thousands of Americans burnt by the housing bust that wiped out $7tn in homeowner equity and is still suffering from its fallout.
“If I could do it all over again, I wouldn’t be a homeowner,” she says. “What’s the point if you can’t guarantee your house will be worth what you paid for it in five or 10 years time?”
Ms Crisman moved to the US from the Netherlands in 2002 after she married her American husband Alan. The couple bought a house close to her parents-in-law in a small former steel town north of Pittsburgh, Pennsylvania. For a few short years Sandie lived her version of the American dream.
But the financial crisis hit the family hard. Tough times compelled Mr Crisman, who is an aircraft engineer, to move to Alabama in 2010 and then Florida for work. His wife and stepdaughter soon followed.
“We left Pennsylvania but we just couldn’t sell our house. To this day it is still underwater,” says Ms Crisman, a personal assistant.
The family, which owes more on the house then it is worth, became what housing sector analysts call “accidental landlords”. They rent out the Pennsylvania house but the income does not cover the mortgage. “We are having to supplement payments at the same time as we are paying rent on another property in Florida,” she says. “The situation is incredibly frustrating.”
Ms Crisman gave up her job in Pennsylvania but, unable to find work elsewhere, she began to max out credit cards, spoiling her credit rating. Her savings were drained. Ms Crisman says she is now a renter for life.
“Once our property is sold I will never buy another house again. I refuse to take on the risk,” she says.
But Ms Crisman is not the only one. The US home-ownership rate has dropped to an 18-year-low at about 65 per cent – down from a peak of 70 per cent before the crash – and economists say it is set to fall as low as 60 per cent. Some industry watchers are now asking if the US, after a multi-decade push towards home ownership, is shifting towards being a nation of renters.
“With the housing bubble bursting, the home-ownership rate was always going to drop. In some respects this has been healthy as the country has been reversing some of the excess. Not everybody should have been homeowners,” says Michael Gapen, senior economist at Barclays. “But there is now an open question about where it will settle.”
But even as record-low mortgage interest rates, an improving jobs market and rising consumer sentiment have propelled more Americans to buy houses after years of staying away, the recovery in US housing has not reached all corners of the country. While bidding wars and double-digit price rises are typical in the most sought-after locations, shrinking towns and stagnant neighbourhoods are prevalent elsewhere.
In recent years a sharp increase in foreclosures, amid job losses, decreased incomes and reduced asset values, has forced many one-time homeowners to rent. For each percentage point decline in home ownership, there has been a shift of approximately 1.1m households to the rental market. To meet this demand new construction of multi-family apartment blocks has surged 353 per cent since the housing market trough, while groundbreakings of single-family homes has risen 78 per cent, commerce department data say.
Some industry experts say the trend towards renting will persist. If they are correct and more Americans – like Ms Crisman – decide to give up on the idea of owning a home, it will represent a major shift in US society.
“Home-ownership isn’t bringing a lot of happiness,” said Vishaan Chakrabarti, director of the Center for Urban Real Estate at Columbia University in New York. “We went through decades of thinking that houses would appreciate in value. We cannot guarantee this any more.”
He added: “For the first time since the 1920s, cities are growing faster than suburbs. More and more people are renting, from striving graduate students to the working poor, and the government needs to recognise this change.”
The idea that a structural shift is taking place has pushed institutional investors into the rental housing sector. Many are betting the business of buying single-family homes and converting them into rentals is not just a short-term, opportunistic bet on rising home prices but a sustainable business model that could grow into what Morgan Stanley says is a $100bn market opportunity.
A healthy rental market is a good sign. A bad sign is when three generations live under the same roof
The largest actors in the sector have raised about $20bn to invest in houses, said Jade Rahmani, analyst at Keefe, Bruyette & Woods. Now private equity group Blackstone is considering a plan to sell bonds backed by rental income from more than 1,500 of the 33,000 homes it has bought so far. Just as large investors turned the multi-family apartment sector from a mom-and-pop business into an industry, they say they can do the same with the single-family market, counting on demand from people who got used to owning a house before the market turned.
Last year Peggy Tseung, a former banker, teamed up with Mike Bednarski, whose family has been buying, renovating and renting properties for 30 years, to launch a home rental company in Florida. Ms Crisman is one of their tenants.
“We’re focusing on the areas in Tampa and Orlando where there was a lot of overbuild,” said Ms Tseung. Florida, like Nevada, California and Arizona – the so-called sand states – was one of the worst-hit housing markets. Their ample supplies of distressed homes have attracted investment buyers. “Many of our tenants are those displaced by the foreclosure crisis, blue-collar workers, low-income earners, families whose kids are in the local schools.”
For more than 50 years US administrations touted property buying as a way to put lower-income families on a path to social and financial stability. The Clinton and Bush administrations pushed programmes to encourage buying. But the political winds have shifted towards heading off future financial crises. Tougher lending standards are blamed for shutting people out of the market, even those potential buyers with good credit.
“Can we afford to have too high a bar for home ownership?” asks Sarah Rosen Wartell, president of Washington-based think-tank Urban Institute. “Home-ownership has typically provided an attractive mechanism by which people were able to save and it has been a powerful enabler of economic mobility. But while people’s desire to own a home has not significantly diminished, their willingness to make a near-term decision to own is now impaired.”
The shifting landscape of banking regulations is partly to blame, says Ms Wartell, with a host of new rules designed to prevent the excessive risk-taking that led to the housing bubble. Before the crisis financing was eased by mortgage-backed securities, the complex loan pools that nearly washed away the financial system. The market for private-label securities – that is, mortgage-backed bonds issued without a government guarantee – has rebounded from its post-crisis trough but is well below its peak.
Other questions hanging over the housing market include whether Fannie Mae and Freddie Mac will remain government-sponsored entities and if the mortgage interest rate tax deduction will be eliminated.
What is clear is that there will be a stricter regime with more hurdles for potential homeowners. Most affected will be the country’s young, too often saddled with heavy student debt burdens to afford hefty downpayments.
“I went to university with the hope I’d be paid more and be able to live a good life, maybe one day even owning a home,” says Siobhan Enthoven, Ms Crisman’s 27-year-old daughter. “But it’s a double-edged sword. The money I would have saved for a potential downpayment is now going into paying for my student loans. No matter how attractive the environment might be to buy a house I just can’t do it.”
Rife unemployment and underemployment among the country’s youth means more are packed up in the basements of their parents’ houses or doubling up with roommates rather than setting up house on their own.
This was a big factor in the slowdown in household formation, which plunged to roughly 450,000 net new households a year between 2006 to 2011, down from 1.35m a year over the previous five, according to Commerce Department data. Only 746,000 households were created between the second quarter of 2012 and the same period a year later.
Economists say young people who are unable to buy a house could boost the US economy when they do start buying. But many young adults are neither buying nor renting. “In fact, a healthy rental market is a sign of a good US economy. A bad sign is when you have cohabitation and three generations living under the same roof,” said Mr Gapen.
Just 74.8 per cent of Americans aged 25 to 34 are employed, which is closer to the low point during the recession (73-74 per cent) than to the pre-bubble norm (78-80 per cent), Bureau of Labor Statistics data show.
Aside from their ability to pay for a house, attitudes are shifting about whether home ownership will continue to offer the advantages of physical security, financial status and the opportunity to build wealth.
Waiting to get married and have children, coupled with changing work-life preferences, also mean that more people are opting to rent for longer. Empty nesters – parents whose adult children have moved out – are also looking to downsize to rentals.
Renting as the new reality is not just confined to the housing market. In the so-called sharing economy, Americans are acclimatising to the idea of giving up ownership for the flexibility of being a renter, from films on the internet through Netflix and vehicles through Zipcar to temporary accommodation via Airbnb.
But some, like Robert Dietz, economist at the National Association of Home Builders, dismiss the idea that America is turning into a society of renters. As the US economy returns to health, he says, there will be a boost to household formation and in time home ownership, led by young people, immigrants and potential homeowners who waited out the downturn.
“Yes, there are a lot of young people living with their parents, but I think this is temporary. A lot of these households will form,” says Mr Dietz. “Low employment for younger workers, slack income growth, falling marriage and fertility rates are all factors this country is working through as part of the deleveraging and healing process that took place after the recession. A lot of these things will return.”
Back in Florida, Ms Enthoven also remains positive. “Even though it’s daunting and there are so many things to think about, it is something I’m hopeful for,” she says. “I expect to own a home some day, I just don’t know when it will be.”
First rung on the property ladder out of reach
Creation of new US households – families buying a first house, for instance – collapsed after the property bubble burst in 2006. With labour markets recovering, people who delayed starting a household could be expected to be catching up now, driving a big recovery in the US housing market and the overall economy, economists say.
But while home sales are up, new construction is rising and there are fewer homeowners in negative equity, household formation has not picked up at the same pace. Many analysts have predicted these “missing households” would make a comeback when the economy was on sounder footing. So far this has not happened.
This is largely because people aged between 18 and 34 are still not setting up households at a robust rate, according to an early analysis of 2013 population data by Jed Kolko, chief economist at property website Trulia.
They are being held back by problems pinning down a job, huge student debt burdens and difficulties saving up for a big downpayment – all barriers to household formation, Mr Kolko says.
This period of early adulthood is the prime time for people to get on to the property ladder in the US. But many of them are still living with their parents. The share of young adults doing so has risen to more than 31 per cent, from about 27 per cent before the crash.
Even as the national unemployment rate has declined to 7.3 per cent, the level among the country’s young adults is almost twice as high. More and more of these individuals are dropping out of the labour force altogether.
“It’s not that these people don’t want to form households, or rent or buy – they just can’t,” Mr Kolko says. “When the job market recovers and more people enter the labour force, they will be back.”
But if these households are not formed, they can hold back the economy, says Mark Zandi, chief economist at Moody’s Analytics. Whether buying or renting, each new household is tied to spending on items such as furniture, electronics and other consumer staples. Such spending adds about $145,000 to output that year as the cash ripples through the economy.