Homeownership Versus Renting Shows Looming Problem, Says Pioneer Law Firm
Research published by the National Association of Realtors (NAR) found the gap between rental costs and household income is reaching "unsustainable levels." Renter households have been increasing and homeownership is falling. In the last five years a typical rent rose 15 percent while the income of renters grew by only 11 percent. Top markets saw rent increases since 2009 by as much as 51 percent in New York, 32 percent in Seattle, and 24 percent in Denver. In contrast, new home construction has not increased in decades, limiting options for buyers. U.S. housing starts decreased by two percent in January from the previous month, however analysts forecast 2015 to be a better year for construction.
"Current renters seeking relief and looking to buy are facing the same dilemma: Home prices are rising much faster than their incomes," says Lawrence Yun, NAR's chief economist. "With rents taking up a larger chunk of household incomes, it's difficult for first-time buyers – especially in high-cost areas – to save for an adequate down payment." Over the past seven years housing starts have averaged 766,000 per year and Yun estimates that housing starts need to rise to 1.5 million to relieve housing costs.
For those who do own homes, the value of their homes have been slowly increasing across the U.S. According to CoreLogic, nearly 1.2 million borrowers regained equity last year, meaning that only 11 percent of Americans still owe more on their mortgage than the value of their home. Overall borrower equity increased $656 billion year-over-year. CoreLogic forecasts home prices will grow five percent this year, moving another million homeowners out of negative equity.
The decline in home ownership and affordability of housing has also had an impact for mortgage-related businesses. Revenues from mortgage bankers has declined across the industry with layoffs and downsizing at the largest mortgage banking companies. Total mortgage origination volume declined by 53 percent at JP Morgan in 2014 compared to the previous year. Loan servicing declined less by eight percent year-over-year. The company has reduced its Mortgage Banking head count by almost 19,000 over three years. The same impact has been felt by Bank of America, Wells Fargo, and other financial institutions.
"People are still rattled by the 2008 property crash and the record numbers of foreclosures and bankruptcies. For many Americans owning a home is no longer a long-term investment goal to build wealth. Most renters aspire to own a home, but saving for a down payment is increasingly difficult." says John Dougherty, Founding Attorney at Pioneer. "For those watching the economy, the decline in loan defaults and loan modifications, plus the rise in home values and mortgage lending layoffs are good signs. The gap between renters and homeowners is still a troubling indicator however as affordability for housing isn't aligned with the personal finances of the average American."
About Pioneer Law
Pioneer Law is a legal firm specializing in Bankruptcy, Business Litigation, FDCPA, and Real Estate law. For those paralyzed by debt, disputing with a business, troubled by a collector, or involved in the sale of real estate, the specialists at Pioneer Law are prepared to advise, represent, and give peace of mind. For more information visit PioneerLawFirm.com.