Gains in homeownership vanish, and new renters find fewer options

WASHINGTON — Americans are renting apartments and houses at the highest level since President Bush started a campaign to expand homeownership in 2002, a trend driven largely by the surge in foreclosures and an unsettled housing market that has left many renters unable or unwilling to move, housing analysts say.

The percentage of households headed by homeowners, which soared to a record 69.1 percent in 2005, fell to 67.8 percent this year, the sharpest decline in 20 years, according to census data through the end of March. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.

The figures, while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Bush all but vanishing over the past two years.

Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, in the hope that housing prices will continue to fall.

The confluence of factors has largely derailed what Bush called "the ownership society," his campaign to give millions of people — particularly minority and lower-income families — a shot at homeownership by encouraging lenders to finance more home purchases.

"We're not going to see homeownership rates like that for a generation," said Mark Zandi, the chief economist at Moody's Economy.com, a research company.

For many minority and lower-income families who viewed homeownership as a steppingstone to building wealth and passing it on to their children, the transition from owning to renting has been the unraveling of a dream. Burdened now by debt and bad credit, some of these families are worse off than they were before they bought.

"The bloom is off of homeownership," said Bill Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001. "We're seeing more dramatic growth in renters and a decline in the number of owners. People are beginning to understand that homeownership can be a very risky venture."

Apgar said the Joint Center had predicted an increase of 1.8 million renters from 2005 to 2015, given expected population trends. Instead, they saw a surge of 1.5 million renters from 2005 to 2007 alone. In the first quarter of this year, 35.7 million people were renting homes or apartments, census data show.

"Even though we're only looking at a short period, these trends are pretty powerful," Apgar said.

Zandi said he believed that minority and lower-income homeowners had been hardest hit. Nearly 3 million minority families took out mortgages from 2002 to the first quarter of this year, housing officials say. Since minority families were more likely to receive subprime loans, economists believe these families account for a disproportionate share of foreclosures.

Tony Fratto, a White House spokesman, said that officials had hoped the homeownership gains would stick. "We're disappointed that conditions in the housing market didn't allow those gains to be sustained," he said. "But we're optimistic that they can return."

Nationally, rents have increased about 11 percent since 2005, when homeownership rates started to decline, though that growth is slowing, according to the Bureau of Labor Statistics.

In some cities, the slump in the housing market has begun to push up vacancies as condominiums are converted into rentals, according to Raphael Bostic, the associate director at the Lusk Center for Real Estate at the University of Southern California.

But those new apartments are often out of reach of struggling families. And since many owners of rental properties are also going into default, the foreclosure wave has resulted in fierce competition for affordable apartments in some cities.

Meanwhile, some people who have lost their homes find that landlords view them with suspicion.

Steve Allen, 51, a Vietnam veteran in Seattle, was repeatedly rejected when he and his wife, Lesa, started searching for an apartment this month. Some apartment managers said no because they had lost their home to foreclosure. Others said their credit scores were too low.

Times are also tough for renters hoping to buy. Banks have tightened mortgage standards, insisting on good credit scores, proof of income and sizable down payments.

Lez Trujillo, the national field director for ACORN Housing, a nonprofit group that helps lower-income families get mortgages, said a third of their applicants ended up with houses just a few years ago. Now, it is 1 in 10, she said.

Barbara O'Leary-Hatfield-Liberace, a 68-year-old retiree and an ACORN member, encountered such difficulties when she and some friends decided to buy a $340,000 house in Seattle.

The mortgage company they consulted said they needed to clean up their credit and come up with a $45,000 down payment, money they do not have.

So on most nights, when O'Leary-Hatfield-Liberace thinks about her dream house, she reaches for the rosary that she keeps under her pillow.

"I pray a lot and hope to heck we'll win the Lotto," she said.