LuxuryBlurb

Posted by Leonard Steinberg on April 24th, 2012

The press is reporting that the U.S. homeownership rate may fall two percentage points to 64 percent, below historic norms, amid about six million additional foreclosures and tight lending standards, according to Pacific Investment Management Co.’s Scott Simon. This translates to about 4 million homeowners turning into renters.

Homeownership has declined from 69.2 percent in 2004, the highest on record, after loose credit and soaring property values drew buyers into the market, according to the Census Bureau. While owning is now “incredibly cheap” compared with renting for consumers who can qualify for loans, relatively few Americans can take advantage of the opportunity. The proportion of Americans owning their homes averaged 64.5 percent in the 1970s and 1980s. U.S. home prices are down 35 percent on average from a 2006 peak, after declining in February to the lowest since 2002, according to S&P/Case-Shiller index data on value in 20 markets released today. Prices are poised to drop an additional three or four percent before bottoming during the next 12 months according to Simon.

While many blame the glut of approximately 4 million homes that were over-built on reckless homeowners/buyers, the actions of banks and the inaction of government, especially Freddie Mac and Fannie Mae, I think a large chunk of the blame lies on the charlatans (TV shows, info-mmercials, books, advisers, TV personalities, brokers, friends, etc) who peddled the concept of home-buying as a Las Vegas-style gambling hall: This vast pool of ‘flippers’ helped fuel unrealistic, unjustified price gains that fueled an unrealistic volume of building. Fortunately for Manhattan, the pool of investor buyers was very, very small, and for the most part the investors were very wealthy. With New York comprising approximately 70% of rental properties the chances for over-building condos was always automatically minimized, although not all escaped unscathed. The last 3 years have proven to be the GREAT EQUALIZER, showcasing how those properties that experienced price escalation just because of averages, have dropped in value, while many that were somewhat depressed by these averages have soared. Yes, some properties will see a 6-10% price escalation in 2012: Others will not, and some may even see a small decline.

Personally, I am witnessing broad RENTER FATIGUE in New York: The New York Times recently addressed this issue how for the first time in years, many renters faced with increasing rents are turning to homeownership (with low rate financing) as a very viable alternative. I am seeing this on all ends of the budget spectrum. So while we all said that things would never be the same 3 years ago, I feel homeownership as the ultimate goal will return to the US, and rates of ownership will start to rise in about 3 years as the cycle unfolds…….in short, I think the trend towards renting versus owning is a temporary one.