A fading American dream: Economy leads many to rent

Buying a home remains the American dream for many. But a nightmarish economy has made renting an increasingly popular option, housing industry experts say.

Some consumers choose to rent because of skittishness over losing their jobs, among other reasons. Renting, however, is a necessity for others who have lost their homes to foreclosure, been laid off or who can’t qualify for a mortgage because of shaky credit.

Nationally, the percentage of people who own a home dropped to 65.9 percent during the second quarter — the lowest since the first quarter of 1998. That was down from a peak of 69.2 percent reached in late 2004, according to the U.S. Census Bureau, when lax lending standards were fueling home sales.

“Even in cases where it might make more financial sense, or it might actually be cheaper on a monthly basis to own a home rather to rent one, a lot of people are not making that purchase,” said Oliver Chang, head of U.S. housing strategy at Morgan Stanley.

Locally, the demand for rental properties has soared, and vacancy rates among rental homes and apartments have dropped to some of their lowest levels in years. Developers, meanwhile, have started construction on hundreds of local apartments. All of the activity, not surprisingly, has sent rents higher.

The property management division of Rusinak Real Estate in Colorado Springs has 185 single-family homes and townhomes for rent, said broker/owner Nancy Rusinak.

“We cannot keep them on the shelf,” Rusinak said, as if the properties were floor fans in a heat wave. “They are flying out the door.”

Wayne Guthals, owner of Blue Mountain Real Estate and Property Management  and past president of the Springs chapter of the National Association of Residential Property Managers, said the group’s 40 local members oversee several thousand rental properties. Based on conversations with those property managers, Guthals estimates that the current vacancy rate for single-family residences is about 5 percent — the lowest in a decade.

“We have very little vacancy, especially in quality houses,” Guthals said. Several townhomes in four-plex developments are available, but traditional single-family homes that rent for $900 to $1,200 a month “are in short supply,” he said.

The ongoing economic malaise has driven the demand for rental housing, experts say.
Angela Byrne, broker/owner of Byrne Real Estate & Property Management, said a lack of consumer confidence is the biggest factor cited by her clients who have chosen to rent instead of buy. Even with mortgage rates at 60-year lows, some people remain worried about losing their jobs or fear their home values will plummet.

“We do have a lot of people who are very well qualified and may even have the down payment (for a mortgage), but are just holding back because they’re unsure of what looms on the horizon,” Byrne said. “We’re screening a lot of people who have 700-plus FICAs (good credit scores) and placing them in rentals. So it’s not necessarily that they’ve just come out a bankruptcy or a foreclosure or a short sale. They may be ready to go (financially), but mentally are not.”

Rusinak said the No. 1 reason some of her clients have chosen to rent is their inability to sell homes in Florida, Michigan or other places where they lived before relocating to the Pikes Peak region. Few people can afford to carry two mortgages.

“Until they can sell their homes there, they can’t buy here,“ Rusinak said. “They have homes scattered throughout the United States. Those homes are just sitting on the market.”

Another factor driving the rental market: Guthals said some military personnel aren’t buying because they expect to be deployed.

When it comes to homeowners who are seeking to rent their properties instead of selling, Byrne said most are doing so because they’re “upside down” on their house — they owe more on their mortgage than what the house is worth. In order to sell the home, they’d have to bring cash to the table at closing time to help complete the sale. Or, some would have to go the route of a short sale — selling the house for less than the balance of the mortgage — and risk damaging their credit rating, she said.

Jane Leonard, one of Byrne’s clients, moved to the Springs in 2005 to be near her daughter and bought a small rancher a few blocks west of the Patty Jewett Golf Course. She’s since moved from the Springs and is living in Ohio.

In April, Leonard sought to sell her house after making several thousand dollars worth of upgrades, including a new furnace, hardwood floors and copper piping.

After she couldn’t sell, Leonard dropped her asking price. Pretty soon, Leonard said, she realized that even if she found a buyer at a lower price, she wouldn’t be able to recover the money she had invested in the home.

Now she’s renting out the property and waiting until home values increase.

“If it was a different time, it would have sold very quickly,” Leonard said.

But today’s market has thousands of properties for sale each month, including distressed properties that have been put back on the market after going into foreclosure.

It’s not just rental homes that are in demand; apartments are, too. The apartment vacancy rate in the Springs area was 6.4 percent in the second quarter of this year, and dipped below 6 percent in the first part of the year. That’s a marked change from double-digit vacancy rates during much of the past decade.

Developers have taken notice. At least two apartment complexes are under construction in the area, which will add about 400 units to the market at a time when demand is strong.
The Peaks at Woodmen is a 230-unit complex under construction at Union Boulevard and Woodmen Road in northern Colorado Springs; the Vistas at Jackson Creek is a 177-unit complex going up in Monument, north of town.

Many renters simply don’t want to buy a home while the economy remains iffy, said Rick Blevins, land development director for Vision Development, the company developing the mixed-use Jackson Creek project where the Monument complex is being built.

“You can have good credit,” Blevins said. “Interest rates are at record lows. You could have a job, but maybe you’re concerned about that job. How long is it going to last? You don’t want to take on that responsibility.”

With increased demand has come higher rents. The average monthly rent for a Colorado Springs-area apartment increased to a record high of $759.01 during the second quarter, according to the Colorado Division of Housing. That’s up $22 from the first quarter and $40 over the same period last year.

Rents for single-family homes, meanwhile, are up about $25 to $75 a month from a year ago, Guthals said.

What’s happening in the Pikes Peak region mirrors trends around the country.

“The combination of falling home prices, limited mortgage credit, continued liquidations and better rental options is fundamentally changing the way Americans live,” according to Morgan Stanley’s research.

A recent survey by mortgage finance giant Fannie Mae shows more will choose to pay rent rather than buy.

“Dissatisfaction about the direction of the economy and related employment fears are damping demand to buy homes and slowing the recovery,” Fannie Mae’s chief economist, Doug Duncan, said in a quarterly housing survey.

“People who believe owning is a better deal than renting are nonetheless planning to rent, at least until things improve.”

At some future point, however, the dream of home ownership could be reignited among renters. A recent study of 2,142 adults by the Pew Research Center indicated more Americans would prefer to own if they had the financial means.

Just 24 percent of renters said they were doing so by choice, rather than necessity, and 81 percent believed that owning a home was the best long-term financial investment goal for their families.
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Contact the writer at 636-0228. Reuters contributed to this story.