In a May 2010 nationwide online survey of preferences toward renting or homeownership, 76% of the 2,140 respondents (including 1,443 homeowners and 617 renters), believed that renting was a more viable option in today’s real estate market.

As the nation’s economy struggles and the population becomes better informed about this financial crisis and recession, people are becoming less likely to take risks or make changes in their housing status. 60% of renters and 71% of homeowners intend to remain in their current living situation for at least the next year.

Lenders have become just as cautious about homeownership as have owners and tenants. The lender situation, however, will prove disadvantageous to new college and high school graduates looking for a place to live. If this attitude holds for several years, the mini-boom expected into 2018 will be less exciting than we had hoped. Banks have reverted to traditional financing arrangements, requiring (as they did before deregulation let them run wild) a 20% to 25% downpayment before conventional loans are available at market rates. This too will inhibit buyers, if not be an outright restraint.

Lower downpayments bump the total monthly payment for a specific loan amount by adding up to 1.55% annually (MIP) to the rate plus impounds and homeowners’ association (HOA) fees to set the total monthly payment. This simply reduces the amount of loan the buyer can qualify for by nearly a third, and in turn, depresses home pricing. The first-time homebuying generation, those age 25-34, will be forced to wait until they can save up the downpayment before they can buy a home much beyond a $200,000 price. [For more on demographics of ownership, see first tuesday market chart First Time Homebuyers and New Housing]

Of the reasons cited for preferring renting over ownership, the additional burden of major home repairs or maintenance was the most popular, cited by 64% of respondents. Another popular reason for preferring renting was the financial burden of owning or buying a home, including the unpredictable real estate market (33%) and not being susceptible to foreclosure (33%).

first tuesday take: When comparing renting versus buying a home, one cannot just look at amount of rent for a particular property versus the mortgage payment for owning that property as the extent of the financial commitments involved for each. The rent payment encompasses the property’s taxes, hazard insurance, maintenance and replacement, any HOA fees and a return on the owner’s investment. Conventional financing payments include none of this.

Federal Housing Administration (FHA)- private mortgage insurance (PMI)-insured financing includes roughly half of the home ownership operating costs through impounding. Further, roughly seven years of ownership is required (depending on the rate of asset inflation) to cover the costs of acquisition and resale of a property.

Instead, a smart rule of thumb is to multiply the family’s, or the individual’s, gross annual income by five (5X), the factor used to calculate how much a prudent buyer can pay for property. If the buyer is unable to produce a 20% downpayment, this ratio is too high. [For more information regarding renting versus homeownership, see the June 2010 first tuesday article, Renting vs. Buying: the GRM.]

On first tuesday staff review, the National Apartment Association’s (NAA) report includes 494 respondents from the West which included 218 specifically from California. Of those Californians, 89 were tenants and 122 were homeowners—which is roughly proportional to California’s tenant/owner ratio of 45% tenants and 55% homeowners.

It is slightly alarming that the representative 30% of Californians are unsure whether they will be residing in their current home in the next year – considering only 26% are sure they will continue to live there. With so many respondents unsure of their living arrangements for the next year, it is not surprising that only 6% intend to purchase a home in the next year.

Californians, especially agents, are more accustomed to a seven- to ten-year turnover in homeownership than a 16-year turnover. But heads up: all this tight-fisted caution will dissipate within the next couple of years as jobs pick up, space becomes better occupied and inventories of vacant units and unsold properties melt away.

Re: “New Survey Finds 76 Percent of Consumers Now Believe Renting to be a Better Option over Homeownership” from National Apartment Association