Renters Plan to Continue Renting. Blame Uncertainty

Uncertainty and apprehension appear tornbe influencing the economy as much as reality according to the latest NationalrnHousing Survey (NHS) conducted by Fannie Mae. rnThe survey found growing pessimism about employment, the economy, andrnthe role of housing in individual lives; a concern that appeared to mountrnthroughout the second quarter and into July. rn</p

Therntelephone survey was conducted with 3,002 persons in the April through Junernperiod and included both homeowners and renters and a subset of homeowners whornwere underwater with their mortgages. It is designed to assess respondents’ confidence in homeownership as anrninvestment, the current state of their household finances, views on the U.S.rnhousing finance system, and overall confidence in the economy. </p

Sixty-four percent of respondents saidrnthat the economy is on the wrong track, the highest number in the six-quarterrnhistory of the survey.  In the wave of interviewsrnconducted in July for the third-quarter report this number rose to 70 percent. </p

Persons reporting concern about theirrnjob security, 26 percent of those interviewed, expressed more anxiety and pessimismrnacross the board than those respondents who were not concerned about losing theirrnjobs in the next 12 months.  For example,rn33 percent of employment-concerned Americans thought they had sufficientrnsavings compared to 49 percent of the others and 44 percent said theirrnhousehold expenses had increased significantly over the last year while only 35rnpercent of the unconcerned made that statement. rnConcerned respondents were also less likely to view this as a good timernto buy a house (65 percent against 76 percent for those who were not concernedrnabout their employment) and more likely to rent than to buy the next time theyrnmoved (34 percent versus 24 percent.)  </p

Inrngeneral, respondents are not optimistic about the housing recovery.  Only 26 percent expect home prices to risernover the next year compared to 30 percent who expected that in the firstrnquarter. Those who do anticipate an increase have lowered their expectationsrnfrom an average of 0.9 percent to 0.4 percent. rnThe number who expected interest rates to rise also decreased from 49rnpercent to 46 percent.  Forty-fourrnpercent of respondents think rentals will go up over the next year, onernpercentage point more than in Q1 and the average increase expected rose fromrn3.2 percent to 3.5 percent. </p

Twenty-sixrnpercent of mortgage borrowers report that their mortgage is underwater, anrnincrease of 3 percentage points since Q1. rnThese borrowers are more likely to report that they are stressed byrntheir debt, 42 percent, than the universe of mortgage borrowers, 31rnpercent.  These underwater borrowers arernalso more likely to say they have considered defaulting on their mortgage (9rnpercent) than are all mortgage borrowers (4 percent.)  This may be influenced by the fact that 57rnpercent of underwater borrowers know someone who has defaulted on a mortgage versusrn49 percent of all mortgage borrowers. rnOther studies have indicated that knowing a defaulter makes it morernlikely a homeowner will himself default.</p

Sixteen percent of all respondentsrnreported significantly higher household debt than one year earlier, but 19rnpercent said their debt had significantly decreased; 25 percent reported anrnimproving overall financial situation while 26 percent reported it hadrnworsened.  There was a large disparityrnbetween homeowners and renters with 36 percent of the latter reportingrnimprovement against only 18 percent of homeowners.  A quarter of each group reported theirrnpersonal finances were worse.  Homeownersrnwho were underwater reported their situations had deteriorated over the lastrnyear in 31 percent of the cases.  Lookingrnahead, 39 percent of those interviewed expect their financial situation tornimprove over the next year, down from 42 percent, while 16 percent expect it torndecline, a one point drop from the last quarter. </p

“Consumersrnare more cautious due to concerns over employment and household finances,”rnsaid Doug Duncan, vice president and chief economist of Fannie Mae. “As arnresult, consumer spending, which accounts for about 70 percent of the economy,rnground to a halt in the second quarter. Consumers are more hesitant to take onrnadditional financial commitments, and a setback to confidence means a setbackrnto the recovery of the housing market. </p

“Survey data make clear thernrelationship between home purchase demand and concerns about the stability ofrnemployment. Dissatisfaction about the direction of the economy and relatedrnemployment fears are damping demand to buy homes and slowing the recovery.rnPeople who believe owning is a better deal than renting are nonethelessrnplanning to rent, at least until things improve it would seem.” </p

More than 50 percent of the renters respondingrnto the survey live in single-family homes while another 35 percent live inrnsmall (under five units) multi-family housing. rnOnly 11 percent reported living in large (50+ unit) complexes.   Single-family renters tend to have about thernsame income levels as multi-family renters, but are younger and are much morernlikely (47 percent to 27 percent) to have children living at home.  Single-family renters are more likely thanrnmulti-family renters to consider owning a home as being more sensible thanrnrenting (74 percent to 68 percent) but both groups plan to continue renting.  Fifty-four percent of single-family rentersrnand 67 percent of multi-family renters say they will rent rather than buy theirrnnext home.  </p

Both groups of renters are pessimistic aboutrnthe chances of financing a home.  Morernover 70 percent say it would be somewhat or very difficult for them to get arnhome mortgage compared to 53 percent in the general population and 56 percentrnof underwater homeowners.  While roughlyrnthe same percentage of each rental group cited debt, down-payment, income, andrnjob security as reasons a mortgage might be unobtainable, 33 percent of single-familyrnrenters cited their credit history as a hurdle compared to 20 percent ofrnmulti-family renters.</p

Minority respondents were more like tornreport being underwater on their mortgages than non-minority by 31 percent torn23 percent.  They were also more likelyrnto live in states with higher levels of negative equity and were likely tornreport lower family household incomes with 44 percent stating 2010 incomesrnunder $50,000 compared to 23 percent of non-minority households in that incomerncategory.  They did not, however, havernsignificantly different types of mortgages than the population as a whole.  The vast majority of minorities and therngeneral population (87 percent and 89 percent) hold fixed-rate, levelrnamortization mortgages and there was no more than a two point variation in thernpercentage of any category of riskier loan held by the two groups.  Hispanic respondents also exhibited greaterrnjob insecurity than either the general populations or the Black sub-group.  Thirty-six percent of Hispanics werernconcerned about losing a job over the next year compared to 26 percent of thernother two groups.

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