By Quentin Fottrell
Even though real estate prices and mortgages rates remain enticingly low, a growing number of potential homebuyers seem to be throwing in the towel.
According to the U.S. Commerce Department data released today, the only real growth in housing construction is for multi-family buildings — which experts say are typically used as rental units. While total new housing construction inched up just 1% in February, multifamily buildings leaped nearly 30%. The figures suggests more people are foregoing buying a home in favor of renting, a trend that shows little sign of slowing, says H. Pike Oliver, senior lecturer at Cornell University’s Department of City and Regional Planning. “People are scared that prices may go down and scarred by their experience of the past five years,” he says.
The continued uneasiness about homeownership is surprising, experts say, given that home prices are still falling in many regions. Florida, California and Las Vegas are still reeling from oversupply due to the pre-2008 housing boom, says Mark J. Perry, professor of economics at University of Michigan-Flint. “Housing affordability is at an all-time historic high,” he says.
To be sure, there have been some encouraging signs for homebuyers. Foreclosures are being snapped up by banks and re-sold. Lenders in January reclaimed almost 91,100 distressed properties, which includes foreclosures and short sales, up nearly 30% from the previous month, according to LPS Applied Analytics. And the Commerce Department data also showed that the number of new single-unit houses authorized for construction rose nearly 5% in February– more than the 3.3% increase for buildings with 5 or more units.
That said, experts say there is a new generation who are happy to keep renting. “Children of the baby boomers are flooding into the rental market,” says Kevin Finkel, executive vice-president and director of acquisitions at Philadelphia, Penn.-based Resource Real Estate. People generally rent apartments between aged 24 and 34, he says. Finkel says the continued influx of highly skilled immigrants to the U.S. is also driving rental demand. Others say those sitting on the sidelines are still waiting for stronger signs of a recovery before making their move. “We will have to have a sustained period of job growth and stability in prices to reverse this trend,” Pike says.