Tomer Minuskin builds houses in Nashville, but nobody wants to own them at the moment.
It’s a problem that has dragged down U.S. home builders from coast to coast, as builders try to keep their businesses going while hundreds of thousands of houses are sitting empty as the result of a wave of foreclosures that have devastated real estate values.
His latest property is a bungalow that sits alone on a cul-de-sac, ready for its first occupant to step through the doors and call it home. When it sells, he’ll think about building another. And so on, until the market recovers enough to justify a new construction surge.
But whoever moves into the house isn’t likely to feel the pride of ownership, because they aren’t likely to be owners at all. In a country that was built on a foundation of home ownership, everyone wants to rent. It’s a fundamental shift that threatens to reshape the country’s economic landscape – new houses are a key source of economic growth in any economy and owners have historically been more financially secure than those who’ve opted to rent.
“This way the houses are kept nice, and we can keep building a little bit here and there whenever we manage to fill a house,” says Mr. Minuskin, as he sits in his very quiet sales office.
Data released Tuesday by the Commerce Department highlight the industry’s problems. There was a surge in building permits in November, a 9.3-per-cent jump from October. But single-family home permits increased by only 2.3 per cent, while apartment construction surged 32 per cent.
Last year, builders began work on roughly 587,000 homes, the worst year on record. This year, construction may top 600,000. That’s because the American dream of homeownership has deteriorated into a nightmare for almost 20 per cent of all homeowners, who have run into trouble with their mortgages and become embroiled in bitter foreclosure battles with their banks.
“It hasn’t been much easier for the other 80 per cent of homeowners either, with tight mortgage credit, high unemployment and negative wealth effects limiting the pool of potential home buyers while a massive backlog of liquidations continues to put downward pressure on home prices,” he said.
The difficult circumstances are leading to a rental renaissance that few could have predicted a decade ago. Indeed, the rental market has posted a remarkable resurgence as Americans turn their back on ownership.
“Rental vacancy rates have fallen faster than they ever have, and rents are rising across the country – even in some of the hardest hit areas of the housing and economic downturn,” he said. “Driven by a once again increasing household formation rate, positive job creation and a surge of distressed homeowners forced to move to rental housing, demand for rental units is booming.”
It’s an opinion shared by commercial real estate company CBRE Inc., which recently published research that suggested the U.S. economy and housing market are slowly coming out of a deep slump and there is a “good chance that a combination of improving household growth and steady or falling home ownership rates will produce the strongest growth in rental demand since the 1980s.”
But it’s not an easy shift – even though Victor Garcia faces foreclosure, his ultimate goal is to either dig his way out of debt or rent long enough for his credit to rebound if he loses his house.
The heavy machinery operator lives in Jacksonville, Fla., with his girlfriend, who is a call centre operator, but their low-interest mortgage has ballooned to 5.4 per cent as their rate reset from an initial promotional rate that was below 3 per cent. He’s close to missing his first payment and he doesn’t expect to recover if that happens.
“I want to stay but I’m not sure it’s worth it any more,” he said, as he waited to speak to a mortgage counsellor who ultimately wasn’t able to help lower his rate. “You can’t take your credit rating with you when you die, and this stress is killing me.”
If he does walk away, he’ll be adding to the inventory of more than 2.5 million homes that are sitting empty in America because of the foreclosure crisis. Analysts estimate another 7.5 million homes could join them in the next few years.