WASHINGTON – A growing number of Americans can't afford a home or don't want to own one, a trend that's spawning a generation of renters and a rise in apartment construction.
Many of the new renters are former owners who lost homes to foreclosure or bankruptcy. For others who could afford one, a home now feels too costly, too risky or unlikely to appreciate enough to make it a worthwhile investment.
The proportion of U.S. households that own homes is at its lowest point since 1998. When the housing bubble burst four years ago, 31.6 percent of households were renters. Now, it's at 33.6 percent and rising. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard's Joint Center for Housing Studies and The Associated Press.
All told, nearly 38 million households are renters.
Among the signs of a rising rental market:
• The pace of apartment construction has surged 115 percent from its October 2009 low. It's still well below a healthy level. But permits for apartments, a gauge of future construction, hit a two-year peak in March. By contrast, permits for single-family home are on pace for their lowest annual level on records dating to 1960.
• The number of completed apartments averaged about 250,000 a year before the boom. They fell to 54,000 last year and will probably number around the same this year. But then the number will likely double to about 100,000 in 2012 and hit 250,000 by 2013 or 2014, according to the CoStar Group, a research firm. The lag is due to the time it takes for an apartment building to be completed: an average of 14 months.
• Demand is driving up rents. The median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010, census data shows. Few expect the higher prices to stem the flood of renters, though. One reason: Younger adults don't value homeownership as earlier generations did and many prefer to rent, studies show.
• Rental housing is giving builders more work just as construction of single-family homes has dried up. Still, that economic lift won't make up for all the single-family houses not being built. Apartments account for only about one-fourth of homes. And renters are outspent roughly 2-to-1 by homeowners, who pay for items from lawn care to remodeling and help drive the economy.
Before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas, according to Moody's Analytics. Today, by contrast, it's cheaper to rent in about 72 percent of metro areas.
Consider Mason Hamilton, 26, an energy consultant who rents an apartment with his wife for $1,100 a month in Alexandria, Va., outside Washington. He'd like something bigger. But he says he doesn't plan to buy even though he could afford to.
"My parents always told me, `You need to buy a place; you need to buy property,'" he says. "But the housing market is insane."
Many younger Americans see owning as risky. It hardly seems the best way to build wealth, especially when prices are falling.
"There's been this idea for years, a part of the American dream, that owning a home improves and strengthens communities," said John McIlwain, a senior fellow at the nonprofit Urban Land Institute. "But what we've learned over the past few years is that many people simply are not ready to own a home."
From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002. Yet in some areas, owning is still too expensive for many.
"It's becoming so difficult for most Americans to afford a home, with larger down payments and tighter credit, that it is creating a renter's nation," says Robert Shiller, a Yale economist and co-creator of the Case-Shiller home price index. "The home is no longer an investment; it's a burden."
Homeownership bestows its own financial advantages, of course. Each loan payment builds equity. Loan interest and property taxes provide tax deductions. And in normal housing markets, home values rise over time.
But for now, renting is more attractive. Hamilton, the energy consultant, says his father, a 58-year-old teacher in Richmond, Va., still owes nearly as much on his mortgage as his house is worth.
"He's stuck in that house," Hamilton says. "After telling me to buy for all of those years, he'd love to rent like me."
BRUSSELS (AFP) – Greece's economic crisis highlighted Tuesday growing divisions at the highest levels in Europe over the rights and wrongs of a risky Greek debt re-scheduling or wider restructuring involving the banks.
Markets fear that any debt restructuring -- which the ratings agencies have said they will treat as an outright default -- will increase the pressure on Italy and Spain, the eurozone's third and fourth-largest economies, just one year after a 110-billion-euro Greek bailout was supposed to stop the rot.
The backdrop is not promising -- the economic recovery is slowing, rating agencies have downgraded Greece and warned on Italy, Spain's government is struggling to impose its austerity programmes and the financial markets are more than nervous.
The European Union and International Monetary Fund bailed out Greece, then Ireland and Portugal in the hope of stabilising the eurozone's strained public finances but now Athens's massive debt problem has come back to the fore.
The head of eurozone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, broke a taboo by invoking the possibility of a "soft" restructuring of Greece's debt mountain last week.
On Tuesday, EU president Herman Van Rompuy warned in a Paris speech of the "real danger" posed by restructuring.
He said such a move would only "aggravate the situation," noting that "the risks of failure in such operations are great when compared to the potential advantages."
At the same time, he tried to put the emphasis back on the more "difficult but necessary" measures by the Greek government after Athens late Monday announced fresh austerity measures and the immediate launch of a state asset sale to raise funds so that it can reduce its debt burden.
The EU and IMF want Greece to sell assets to the tune of 50 billion euros ($70 billion), complaining only recently that Athens had made virtually no progress on this cause.
The European Central Bank is strongly opposed to any idea of debt restructuring as a matter or principle as well as practicality -- it could lose a great deal if the government bonds it is holding as collateral for funding the Greek banks are suddenly reduced in value.
The ECB's chief economist last week even warned that a restructuring might force it to reverse its policy that allows Greek banks to borrow ECB funds by putting up Greek sovereign bonds as collateral.
EU finance ministers raised the prospect last week that some sort of "voluntary" banking write-down would also be required to accompany any eventual restructuring.
The governor of the Bank of France and ECB board member Christian Noyer said Tuesday that the "collapse of the Greek economy, this is the horror scenario" that eurozone and EU partners are desperately trying to avoid.
Giving Greece more time to pay back its debts, seen as a possible first step alongside lowering interest rates, poses very complicated legal questions," he said.
"There is every chance that will amount to a default," he warned, picking up on the similar stance taken by Fitch Ratings when it slashed Greece's rating by three notches on Friday.
Another of the top three ratings agencies, Moody's made the same point on Tuesday in a paper analysing the possible fallout from a debt restructuring for Greece and the wider eurozone.
"It is apparent that the longer the current state of uncertainty ... persists, the greater the temptation ... to try to undertake some form of restructuring -- in other words to allow Greece to default," it said.
"A default is likely to have adverse credit rating implications for Greece, possibly some other stress European (countries) and the Greek banks regardless of the efforts to achieve an orderly outcome," it warned.
WASHINGTON (AFP) – Mexico and other emerging-market powers eying the top job at the International Monetary Fund could pose a winning challenge if they join forces, experts in Washington said.
Mexico on Monday became the first country to present a candidate to succeed IMF managing director Dominique Strauss-Kahn, central bank governor Agustin Carstens.
Carstens has had lengthy experience at the IMF, including as deputy managing director, the body's third-ranked official, from 2003 to 2006.
But a European traditionally holds the managing director job, and French Finance Minister Christine Lagarde is seen as the frontrunner in Europe, although she has not yet been officially proposed since IMF nominations opened Monday.
The nominating period ends June 10, with the next chief expected to be named by the end of June.
"This is the moment to call for people capable of managing financial crises, and the members of the emerging countries have more capabilities than the Europeans, because of their experience," said Claudio Loser, a former director of the IMF's Western Hemisphere department.
"Carstens in my mind is the best candidate, but he doesn't have enough support among the emerging countries," Loser said.
Carstens managed several crises during his 20-year career at Mexico's central bank, where he became governor in January 2010.
"If the emerging countries want something, they need to speak up," said Liliana Rojas-Suarez, a former senior IMF official and an expert on Latin America at the Center for Global Development.
Her ideal candidate is the ex-head of Brazil's central bank, Arminio Fraga, who has yet to receive an official nod from the Brazilian government.
European governments back Lagarde for her understanding of the sovereign debt problems in Greece, Ireland and Portugal, three eurozone member countries with IMF and European Union bailouts.
But Loser, an Argentine, said that is a hollow argument.
"That argument is invalid, although convenient," he explained.
"When the developing world was in crisis, like Mexico in 1995, nobody said that it was necessary for a Latin American" to head the IMF.
He said that when Argentina's debt crisis exploded in 2001, he stepped down amid concerns that he may have a conflict of interest.
"My concern is the conflict of interest" with Lagarde's candidacy, said Arturo Porzecanski, an economist and analyst at the Center for Strategic and International Studies, a Washington think tank.
"The Fund could lose its objectivity and be transformed into an easy source of financing" with a European at the helm, he said.
Mexico's Carstens could have a chance if there is an impasse between Europe and Asia and if the United States, the IMF's biggest stakeholder, is unwilling to back Lagarde, said Peter Morici, an economist and professor at the University of Maryland.
"If the Asians and Brazilians really object to a European, then a compromise candidate from North America becomes possible," he said.
Moises Naim, a Venezuelan economist at the Carnegie Endowment for International Peace and a columnist in Spain's El Pais newspaper, called for the next IMF chief to complete the five-year mandate.
"It wouldn't be a bad idea to ask the candidates that, once elected, they would promise to stay in office the entire term. The last three IMF chiefs, all Europeans, naturally, resigned early," he said.
Strauss-Kahn resigned the position on May 18 after he was arrested in New York for allegedly assaulting and attempting to rape a hotel chambermaid. He denies all charges.
But many thought he was preparing to leave office by the end of July -- three and a half years into his term -- to make a run for the French presidency.