Sunday, October 2, 2011

Rental housing becoming less affordable

A house for rent and for sale in Portland, Ore.
Rick Bowner AP A house for rent and for sale in Portland, Ore.

More renters found housing unaffordable last year as incomes declined, and more are likely to be squeezed this year, given rising rents.

The share of renters paying 30% or more of their household income on housing costs -- the government threshold to determine if housing is unaffordable -- rose to 53% last year from 51.5% in 2009 and about 50% in 2008, according to 2010 Census data released today.

While median rents remained stable last year at $855 a month, median national household incomes, adjusted for inflation, fell 2.2% -- putting the squeeze on renter budgets.

The share of renter households spending half or more of their income on housing rose to 27.4% last year from 26.4% in 2009, while the share of homeowners with mortgages in the same situation rose to 15.1% from 14.7%, the data show.

"Americans continue to struggle to pay for housing, especially renters," says Daniel McCue, research manager at Harvard University's Joint Center for Housing Studies.

Last year, 38% of homeowners with a mortgage paid 30% or more for housing. That was up only slightly from 37.6% in 2009, Census data show.

Yet, the fact that percentage rose at all shows that many homeowners haven't been able to refinance mortgages, despite near record low interest rates, McCue says. Refinancing generally lowers monthly mortgage payments.

The Census Bureau's definition of housing costs includes mortgage payments, insurance, taxes and utilities.

Renters will face higher costs this year, says Stan Humphries, economist for real estate website Zillow.

Nationwide, rents are expected to rise about 4% this year, Humphries says, and will also rise in 2012. Strong demand is driving rents up as homeowners lose homes to foreclosure and become renters. Skittish consumers are also delaying home purchases, given concerns about the economy.

The renter household market was fairly stable from 1990 to 2006, McCue says. But since 2006, when housing prices peaked, the number of renter households in the U.S. has grown each year. Last year, the share of occupied housing units that were rented increased to 34.6% from 34.1%, the Census data show.

While renters are likely to see rising prices this year, home buyers are benefiting from the best affordability conditions in a generation, says the National Association of Realtors.

Nationwide, home prices are down about 30% from their 2006 peak. Favorable affordability conditions and rising rents are driving some home purchases, says Lawrence Yun, NAR chief economist. The association reported Wednesday that existing home sales in August rose 7.7% from July but sales are still extremely weak, says Patrick Newport, IHS Global Insight economist.

Nationwide, the homeownership rate dipped last year to 65.4% from 65.9% the year before. The rate has been declining since 2006 when it was at 67.3%, this Census survey shows.

At some point, lower home prices and higher rents will attract more home buyers, Humphries says. "They will realize they can buy a home for less than it costs to rent," he says.

Already, investors are snapping up homes and converting them into rentals. In August, investors accounted for 22% of existing home sale activity, the NAR says. Cash buyers, who are most often investors, accounted for 29% of sales.

by USA Today Sept 22, 2011

Rental housing becoming less affordable

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