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Rentals Continue To Climb While American Dreams Are Fading

(The rental market is up while the housing market is down.)

That’s nothing new if you have been paying attention to the “real estate” section in any newspaper over the last several months.

But why this is happening may be new news to you.

Buying a home is often thought as an emotional experience and process. Now, this does not mean it is a compulsive buy but rather the emotions of where (near family) or what type (the dream home you always dreamed of) plays a major role.

That concept of the American dream is what drives many people to begin the home buying process as it becomes sort of like a personal goal. The article, “Deferred Dream Trend Appears In Housing Market” written by Broderick Perkins and published November 10, 2006 in Realty Times, explains how the importance of the American dream is fading along with the housing market.

In fact, the rebirth of the rental market has recently been referred to as the result of the diminishment of the American dream mentality.

“The National Multihousing Council (NMHC) said the third quarter rental market was ‘firing on all cylinders’ with improvements across the board in supply-demand fundamentals, occupancy rates and higher rents, as apartment owners also found it easier to acquire debt and equity.”

“‘While the slowdown in the condo market has had some impact on the investment demand for apartment properties, in every other respect the apartment industry seems to be firing on all cylinders,’ said Mark Obrinsky, NMHC's chief economist in a prepared statement.”

There are obvious reasons for the housing slump such as prices that appreciated too fast and are still too high and higher mortgage interest rates. People are also cutting back on adjustable-rate mortgages (ARMS) as they see previous ARM borrowers experience difficulty making monthly payments once the rate adjusts to the higher prime rate. ARMs were responsible for a large number of homebuyers during the housing boom (2000 to 2005) that would not have been able to fund a property without it.

But there may be another more psychological reason that explains why rentals are increasing and housing is decreasing.

“During its recent annual fall meeting in Denver, the Urban Land Institute hosted experts who said the recent housing downturn has made younger would-be buyers reluctant to take the plunge in receding waters.”

“Over the past year, the psychology of the market has changed. People no longer feel that they need to get into home ownership now or they will get passed by,” J. Ronald Terwilliger, chairman and chief executive officer of Trammell Crow Residential in Atlanta, GA said.

During the housing boom, prices were rising fast as developments were selling out before they even had a chance to advertise availabilities. Many non-homeowners thought if they didn’t act and buy as soon as possible, prices would keep rising and become unaffordable (hence the rise in ARMs).

“Terwilliger said it was irresponsible to put people into homes they couldn't afford.”

“Many home owners who recently purchased and now need to sell or those who have taken out home equity loans are finding homes worth less than their mortgage balance. The news is making potential buyers balk.”

So, people who didn’t pull the trigger and waited to buy are now realizing that the American dream is not all it was cracked up to be, at least for now.

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