Homeownership in the United States fell 65.1% in the second quarter to hit a 17-1/2-year low leading to rents in the US rising to record highs.
Historical ‘norm’ in homeownership between 65.5-66.5%. In 2006 it rose to 69%.
Its not rocket surgery. Its Economics.
Be wary of the folks on TV, Radio, Media, or the ones calling you selling admission into their hedge funds claiming “This Time Its Different.”
Basically, its never different. Rules changes causing reactions and over reactions but the market always finds its level… just before another rule change hits and we start over.
For a myriad of reasons, US homeownership is ‘steady’ at 65.5%-66.5%. For whatever reason you want to use, political, economical, social or a combination of all three, this is the percentage of American adults that can handle the responsibilities of homeownership.
In 2006 we saw homeownership levels rise to 69%! While that may not seem like that much, consider a population of 400 million, 3% of that is 12 million more homeowners, meaning 12 million more homes must be built to handle that increase. So what did we do? We built those homes. You know the rest.
The latest numbers show that the homeownership pendulum has now swung back the other way. This is causing rents to reach record highs.
So what does it all mean?
Higher rents means its cheaper to own a home than it is to rent a home. This will bring more buyers to the table, but this will also lead to more investors purchasing rental homes to chase the higher yields. In Phoenix, we are starting to see this come to an end.
Higher rents also means that there are more renters than places to rent (supply and demand). This is a result of people afraid to buy combined with people that want to buy and cannot get qualified. (The latter is a growing number)
Whats the point of having record low interest rates if you can’t even qualify for the loans.
Where do we go from here?
Rates will not stay low forever. No, this time is NOT different. Rates will NOT stay this low PERIOD. But this is a good thing. We have over-corrected to the low side and now we will start the climb back up.
Higher rates mean a healthier economy. There used to be a time when people saved money, and their savings earned them an interest rate (ask your grandparents.)
Additionally, as rates rise banks will loosen their lending standards which allow more people access to capital which in turn creates more demand raising the prices of supply.
Remember the whole “shadow inventory” scare. Yeah, never happened. Investors like me would have loved it to happen, but we knew better. You have to play the hand you are dealt, and this is our hand.
Homeownership is still low, but it won’t be for long. Families are forming, immigrants are moving here, and 20-somethings are getting tired of living with their parents (or vice versa.)
Rates will rise. And it won’t be a bad thing.
So if you don’t own a home right now, you should talk to your lender and Realtor and find out how you can get one. If you already own one you should consider buying another (but thats a whole other story).
Pretty soon we will have a healthy housing market. Combine that with the energy revolution the US is witnessing bringing down costs of production and manufacturing (Detroit will bounce back in a big way) we are going to have a very strong economy. We will look back at this time and wish we bought more houses and we will think that we will never have a down market ever again, because this time it will be different.