Most Single-Family Renters Will Continue to Rent Rather than Buy Their Next Home

Fannie Mae's latest quarterly National Housing Survey (NHS) finds consumer pessimism growing with concerns about job loss, as 64 percent of Americans surveyed during the second quarter saying the economy is on the wrong track, the most for any quarter since the inception of the survey in the first quarter of 2010. That pessimism continued to mount in July, with Fannie Mae's monthly survey finding that 70 percent now believe the economy is on the wrong track, and just 23 percent say the economy is heading in the right direction.

"Consumers are more cautious due to concerns over employment and household finances," said Doug Duncan, vice president and chief economist of Fannie Mae. "As a result, consumer spending, which accounts for about 70 percent of the economy, ground to a halt in the second quarter. Consumers are more hesitant to take on additional financial commitments, and a setback to confidence means a setback to the recovery of the housing market."

Job Security

• Twenty-six percent of American workers report being concerned about losing their job in the next twelve months. While 44 percent of concerned American workers report having a home mortgage (compared to 42 percent of all Americans), just 33 percent of them perceive their savings to be sufficient (versus 49 percent of those workers not concerned about losing their job).
• Forty-four percent of these workers say their household expenses have increased significantly over the past year, compared to 35 percent of workers not concerned about losing their job.
• Employed Americans concerned about job loss are more likely than all employed Americans to say it is a bad time to buy a home and they are more likely to say they would rent their next home.

Single-Family Renters

• More than fifty percent of renters report living in single-family homes.
• Despite just 23 percent of single-family renters saying that renting makes more sense than buying a home, 53 percent say they would continue renting if they were going to move.
• Seventy-three percent of single-family renters say it would be difficult for them to get a home mortgage, with 33 percent citing their credit history as the biggest obstacle to getting a home mortgage (versus 20 percent of multifamily renters).
• Compared to multifamily renters, single-family renters are younger and more likely to have children.

Minority Mortgage Borrowers

• Thirty-one percent of minority mortgage borrowers report being underwater compared to 23 percent of non-minority mortgage borrowers.
• Thirty-five percent of minority borrowers say they are making a great deal of financial sacrifice to own, compared to 20 percent of non-minority borrowers.
• Minority borrowers are more likely than non-minority mortgage holders to live in states with above-average levels of negative equity and are more likely to report lower family household incomes (44 percent say their family income in 2010 did not exceed $50,000, compared to 23 percent of non-minority borrowers).

The Fannie Mae Second-Quarter 2011 National Housing Survey polled homeowners and renters to assess their attitudes toward owning and renting a home, confidence in homeownership as an investment, the current state of their household finances, views on the U.S. housing finance system, and overall confidence in the economy.

Duncan states, "Survey data make clear the relationship between home purchase demand and concerns about the stability of employment. Dissatisfaction about the direction of the economy and related employment fears are damping demand to buy homes and slowing the recovery. People who believe owning is a better deal than renting are nonetheless planning to rent, at least until things improve it would seem."

Other Survey Highlights

• Consistent with previous findings, most Americans think it would be difficult for them to get a home mortgage today (53 percent) and increases to 71 percent among renters.
• While 51 percent of Generation X Americans (age 35-44) say it would be difficult for them to get a home mortgage today, the number increases to 59 percent among Generation Y (age 18-34).
• Thirty-five percent of Pre-Baby Boomers (age 65 and older) say they know someone in their area or neighborhood who has defaulted versus 42 percent for Generation Y and 49 percent for Generation X Americans.
• Twenty-six percent of mortgage borrowers say they are underwater, compared with 23 percent in Q1.
• Underwater borrowers remain more likely to be stressed about their debt than all mortgage borrowers—42 percent of underwater borrowers say they are stressed about their debt, compared to 31 percent of all mortgage borrowers.
• Underwater borrowers are more likely to know someone who has defaulted on their mortgage—57 percent of underwater borrowers versus 49 percent of all mortgage borrowers and 43 percent of the general population.
• As in previous quarters, 2 out of 3 respondents support mortgage modifications, believing such programs help protect the economy and local communities from increased foreclosures and falling home prices.
• In line with previous quarters, 57 percent of Generation Y Americans (age 18-34) expect their personal situation to improve over the next year, compared to only 42 percent among Generation X (age 35-44) and 35 percent among Baby Boomers (age 45-64).

March Toward Rentership Society Continues

Perhaps another sign of a shift in the federal government toward a rentership society comes with an announcement from Fannie Mae. The company announced that in the first half of 2011, it had issued $10.3 billion in MBS backed by new multifamily acquisitions.

"In today's economic environment, Fannie Mae continues to deliver liquidity to the multifamily housing market and provide investment options to market participants," said Kimberly Johnson, Fannie Mae Vice President for Multifamily Capital Markets. "Through our multifamily MBS issuance (including DUS MBS, GeMSTM structured transactions and portfolio activities), Fannie Mae provided market participants with considerable volume and a variety of execution options in the first half of 2011."

Beginning in 2009, Fannie Mae says it made reinvigoration of its multifamily MBS business and broadening the investor base a top priority. By ramping up its MBS execution and transforming the multifamily capital markets business, Fannie Mae has shifted from being primarily a multifamily portfolio market participant to one that provides liquidity to the multifamily market mainly through securitization.

Fannie Mae provides the largest share of U.S. multifamily mortgage financing, and traditionally has been a leader in this market.

Seven Out of 10 Renters Say Owning a Home is a Top Priority

Most Americans still believe that owning a home is a solid financial decision, and a majority of renters aspire to home ownership as a long-term goal. According to the 2011 National Housing Pulse Survey released today by the National Association of Realtors, 72 percent of renters surveyed said owning a home is a top priority for their future, up from 63 percent in 2010.

Seven in 10 Americans also agreed that buying a home is a good financial decision while almost two-thirds said now is a good time to purchase a home. The annual survey, which measures how affordable housing issues affect consumers, also found that more than three quarters of renters (77 percent) said they would be less likely to buy a home if they were required to put down a 20 percent down payment on the home, and a strong majority (71 percent) believe a 20 percent down payment requirement could have a negative impact on the housing market.

“Despite the economic setbacks Americans have experienced in today’s current climate, it is clear that a strong majority still believe in home ownership and aspire to own a home,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “However, achieving the dream of home ownership will become increasingly difficult for buyers if they are required to make a 20 percent down payment, which may be a reality for many of tomorrow’s buyers if a proposed Qualified Residential Mortgage rule is adopted. That is why Realtors are strongly urging regulators to go back to the drawing board on the proposed rule.”

Defining the QRM rule is important because it will determine the types of mortgages that will generally be available to borrowers in the future. As currently proposed, borrowers with less than 20 percent down will have to choose between higher fees and rates today – up to 3 percentage points more – or a 9-14 year delay while they save up the necessary down payment.

Over half – 51 percent – of self-described “working class” home owners as well as younger non-college graduates (51 percent), African Americans (57 percent) and Hispanics (50 percent) who currently own their homes reported that a 20 percent down payment would have prevented them from becoming home owners.

Pulse surveys for the past eight years have consistently reported that having enough money for a down payment and closing costs are top obstacles that make housing unaffordable for Americans. Eighty-two percent of respondents cited these as the top obstacle, followed by having confidence in one’s job security.

The survey also found respondents were adamantly against eliminating the mortgage interest deduction. Two-thirds of Americans oppose eliminating the tax benefit, while 73 percent believe eliminating the MID will have a negative impact on the housing market as well as the overall economy.

“The MID facilitates home ownership by reducing the carrying costs of owning a home, and it makes a real difference to hard-working American families,” said Phipps. “Home ownership offers not only social benefits, but also long-term value for families, communities and the nation’s economy. We need to make sure that any changes to current programs or incentives don’t jeopardize our collective futures.”

When asked why home ownership matters to them, respondents cited stability and safety as the top reason. Long-term economic reasons such as building equity followed closely behind. On a local level, respondents said neighbors falling behind on their mortgages and the drop in home values were top concerns. Foreclosures also continue to remain a large concern, with almost half of those surveyed citing the issue as a problem in their area.

The 2011 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey polled 1,250 adults nationwide, with an oversample of interviews of those living in the 25 most populous metropolitan statistical areas. The study has a margin of error of plus or minus 3.1 percentage points.

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