Housing crisis puts off first-time buyers

By Scott Malone

BOSTON (Reuters) - For decades, buying a home was a key step on the path to financial security for the American middle class.

Home owners could count on a fixed mortgage payment rather than rising rent, take advantage of tax breaks, and build equity as their houses increased in value over time.

But with home prices falling and families losing their homes to foreclosure, some people who under other circumstances would be looking to buy their first home now see greater security in renting.

One such person is Lisa Chesnut, who lives in Tucson, Arizona, and works as an information systems coordinator. With a good job and two young sons, 29-year-old Chesnut and her husband, Bryan, look like classic first-time buyers.

They had considered it, until the market started to slide a year ago.

"At first we thought, prices are falling, that's good," she said in a phone interview.

"Then we started reading about the foreclosures and the ARM rates and people losing their homes," she said. "We thought, what if something happened where we could lose our house?"

Her big fear is falling behind on a mortgage. Having read about people who face higher payments on their adjustable-rate mortgages (ARM), she realizes that being approved for a loan does not guarantee it will be affordable.

STAYING PUT

One sign that more people are choosing to remain in rental apartments while they wait out the slump comes from Equity Residential, one of the largest U.S. apartment owners. Fewer people have been moving out of its apartments -- last year 63.3 percent of its units changed hands, down from 64.9 percent in 2006.

"Turnover is slowing and the rate of moving out for home purchase we also saw slow throughout 2007," said Fred Tuomi, president of property management at the Chicago-based company, who oversees about 150,000 apartments nationwide.

And population projections by the National Association of Realtors suggest hundreds of thousands of young Americans are sitting out the housing market entirely -- neither buying nor renting.

"There's probably 700,000, maybe 800,000 people out there that are not getting into the market either as a renter or as a homebuyer," said Walter Molony, spokesman for the NAR. "Where are these folks? They're out there, they've got jobs. Some of them are moving back with their parents, never left the house, they're doubling up with roommates."

There's no scarcity of data to worry potential homebuyers. Recent reports show that the average price of an existing single-family home in U.S. metropolitan areas fell 6 percent in the fourth quarter, while foreclosure rates in the top 100 metropolitan areas soared 78 percent last year.

"They're the most nervous people I've ever met in my life," said Bob Moulton, president of Americana Mortgage Group, referring to the potential first-time buyers he speaks with.