As the housing market moves slowly into recovery, more and more Americans are gaining confidence and hoping to jump into home ownership.
The home ownership rate has been dropping steadily since its high of 69.2 percent in 2004 to now just 65 percent. Millions lost their homes to foreclosure and millions more never entered the market, fearing falling home prices.
Now, 10 percent of U.S. renters say they would like to buy a home in the next year, according to a new report from Zillow, which surveyed renters in the nation’s 20 largest housing markets.
If all the renters who said they wanted to buy a home in the next year actually did, that would represent more than 4.2 million first-time home buyer sales, about twice the number of first-timers in 2013.
First-time home buying has actually fallen to the lowest level ever recorded by the National Association of Realtors, at just 26 percent of sales in January. These buyers usually make up roughly 40 percent of the market. Interestingly, the majority of the renters who said they wanted to buy felt they could afford home ownership, despite rising home prices and rising mortgage rates.
The trouble is there is just not that much out there to buy. Home construction is still recovering at a slow pace, and prices for newly built homes are far higher on average than for existing homes.The number of homes for sale is rising slightly but is still well below historical norms across most markets.
“Even after a wrenching housing recession, this data shows that the dream of homeownership remains very much alive and well, even in those areas that were hardest hit,” Zillow’s chief economist Stan Humphries said in the report. “But these aspirations must also contend with the current reality, and in many areas, conditions remain difficult for buyers. The market is moving toward more balance between buyers and sellers, but it is a slow and uneven process.”
Homeownership aspirations among renters were actually highest in some of the hardest hit markets of the housing crash, such as Miami, Atlanta and Las Vegas, according to Zillow. That may be because so many renters there are former homeowners who lost their homes to foreclosure. They are now seeing these markets recover, as investors bought up the distressed properties, pushing prices higher far faster than anyone expected. These renters are seeing market resilience, and likely want back in.
Foreclosure activity, in fact, fell 10 percent in February from January and is down 27 percent from a year ago to the lowest total since December 2006, according to a new report from RealtyTrac.
(Read more: Foreclosure falls to lowest in 7 years: Report)
“Cold weather and a short month certainly contributed to a seasonal drop in foreclosure activity in February, but the reality is that new activity is no longer the biggest threat to the housing market when it comes to foreclosures,” said Daren Blomquist, vice president at RealtyTrac.
The report, however, does note that more than 152,000 properties that are in the foreclosure process but not yet bank-owned have been vacated by their former owners, likely due to the long foreclosure timelines. These so-called “zombie foreclosures” have been in process an average of 1,031 days, according to RealtyTrac. These homes sit untended and are a blight to the neighborhoods around them, often reducing nearby property values.
Ironically, these bargains might be perfect for first-time buyers looking for a good deal, but they remain stuck in limbo land. Meanwhile, tight credit and higher prices are keeping many of these same potential buyers away from new construction. Analysts at Credit Suisse who survey real estate agents monthly found weaker buyer traffic and demand in February.
(Read more: 4 million more homeowners now ‘above water’)
“This is in contrast to the recent generally-positive commentary from builders and the optimism reflected in the stocks,” they noted. “We believe the impact from 2013’s sharp rise in home prices and interest rates is having lingering effects and the near-term demand environment will continue to underwhelm, especially for first-time buyers.”
Again, renters may want to buy, but there are still considerable headwinds in the market. However, as more inventory becomes available in the spring, these winds should ease considerably.