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US House Owners Thrive, Renters Struggle

US House Owners Thrive, Renters StruggleUS House Owners Thrive, Renters Struggle

It’s a troublesome story playing out across America in the 10 years since the housing bubble peaked and then burst in a ruinous crash: As real estate has climbed back, homeowners are thriving while renters are struggling.

For many longtime owners, times are good. They’re enjoying the benefits of growing equity and reduced mortgage payments from ultra-low rates, AP reported.

But for America’s growing class of renters, surging costs, stagnant pay and rising home values have made it next to impossible to save enough to buy.

The possible consequences are bleak for a nation already grappling with economic inequality: Whatever wealth most Americans possess mainly comes from home equity. An enlarged renter class means fewer Americans can build that same wealth and financial security.

Nearly two-thirds of adults still own homes. And some who rent do so by choice. Yet ownership has become a more distant dream for the many Americans who still regard it as a route to prosperity and pride. The problem has become especially severe in areas that offer the best job prospects as well as those that have been battered by foreclosures.

“It doesn’t paint a pretty picture,” said Svenja Gudell, chief economist at Zillow, the online real estate database company. “You’re really blocking out a group of buyers from owning a home. They’re truly living paycheck to paycheck, and that does not put them into a good position to buy.”

 Wedge Between Fortunes

An exclusive analysis by The Associated Press of census data covering over 300 communities found that two major forces are driving a wedge between the fortunes of renters and homeowners:

—Historically low mortgage rates have enabled homeowners to refinance and shrink their monthly payments, thereby reducing a major household cost. The median annual mortgage expense for a US homeowner has dropped by $1,492 since 2006.

—A combination of foreclosures and new college graduates crowding into the strongest job markets has raised demand for rentals. Renters accounted for all the eight million-plus net households the United States added in the past decade. Home ownership has dipped to 63.5%, near a 48-year low.

That demand has driven up rents, which in turn have prevented or delayed people from buying first homes.

The government says if you spend more than 30% of your pretax pay on housing, you are “cost-burdened”. The total number of renters in that category has jumped more than 30% in the past decade, to 21.2 million. Half of all renters are now considered cost-burdened, compared with just 24% in 1960.

These trends are reflected in how and where Americans live.

Rents have also jumped in areas that absorbed many young college-educated job hunters. These workers have increasingly clustered in areas, including Boston, San Diego and Washington, with abundant jobs but high housing costs. The result is delayed home ownership for a population group that historically had the means to buy.

Financialtribune.com