Brian Moynihan, the CEO of Bank of America, says that would-be homeowners in some parts of the U.S. should look elsewhere for long-term investment returns. “It’s sobering to think, but some people shouldn’t be thinking of (their home) as an asset,” Moynihan told a gathering of attorneys general at their 2011 conference in April.
Conflicting signals about the market have only added to the allure of renting for those who might otherwise buy. Prices and interest rates are low. But lending standards are strict. Supply is abundant. But so are the forecasts that the U.S. could be in for a lost decade of sideways house prices. It’s led to a resurgence in people taking advantage of the “renter’s subsidy,” the idea that while real estate prices are stuck or moving lower, it’s better –and cheaper — to rent premium real estate than it is to buy.
“There’s a lot of people who can afford to buy, but who won’t buy,” says Nelson.
The statistics on renting and owning reflect that sentiment. One-third of U.S. homeowners now owe more on their homes than they are worth. Since the financial crash, nearly 3 million households have gone from owning to renting. Another 3 million are expected to do the same by 2015, according to Harvard University’s Joint Center for Housing Studies. That has led to higher rents; the average price of a two bedroom residence is nearly $1,000, a 50 percent increase since 2001. Still, in nearly three quarters of cities, it is cheaper to rent than to own, according to Moody’s Analytics.
These factors have helped push home ownership rates to a 10-year low; 66.4 percent of Americans own their homes, down from a record 69.2 percent in 2004.
“We realize now that owning is a risky business,” says Karl Case, a Wellesley economics professor who is also co-founder of the Case Schiller housing index. “Prices can and do fall.”