1.2 Million Households Disappear, Putting Downward Pressure on Home Prices and Rents
As I wrote Monday:
In really bad times, people who are evicted from their
houses will not rent.
Instead, they will move in with friends or family
for some time.
As the Wall Street Journal explained last October:
Driving the change [i.e. large numbers of rental
vacancies and lower rents] is the troubled employment market, which is
closely tied to rentals. With unemployment at 9.8% — a 26-year high —
more would-be renters are doubling up or moving in with family and
friends during periods of job loss. Landlords have been particularly
battered because unemployment has been higher among workers under 35
years old, who are more likely to rent. Nationally, effective rents
have fallen by 2.7% over the past year, to around $972.
As Zack’s Investment Research writes:
A smaller percentage of Americans owned their own homes
in the 4th quarter of 2009 than at any time since 2000. In the 4th
quarter 67.2% of Americans owned their own home, down from 67.6% in the
third quarter and two full percentage points below the peak set in the
fourth quarter of 2004.
As the first graph below shows (from Calculated Risk) …:
So where have all these people gone who are no longer
homeowners? It does not appear that they are moving into apartments or
rental housing. As the second graph shows (also from Calculated Risk),
the rental vacancy rate is now at 10.7%. While that is down from the
record level of 11.1% in the third quarter, it is up from 10.1% a year
ago, and the 7-8% range that was normal for most of the 1990s …
It thus appears that many of the people who used to own their homes,
and no longer do, are doubling up with friends and family. This is
probably not their first choice of living arrangements, but they are
doing so because they have no other choice economically.
In other words, the correlation between falling home prices and
rising defaults, on the one hand, with increasing rental demand and
higher rental prices, on the other hand, doesn’t hold in a really tough
Today, MSNBC adds some important details:
More than 1.2 million households [have been] lost to the
recession, according to a report issued this week by the Mortgage
Bankers Association that looked at data between 2005 and 2008. That
number doesn’t include information from 2009, when job losses and
foreclosures continued to rise.So it’s likely that the full impact of
the 8.4 million jobs lost and nearly three million homes foreclosed on
since the recession began has taken an even bigger toll on the number
of American households.
“Given the depth of the downturn in 2009, and the ongoing weakness
in the job market through the beginning of this year, this study gives
no reason to expect that household formation has picked up at all,”
said Gary Painter, a professor at the University of Southern California
who conducted the study.
The study also shed some light on what happens to the people in those “lost” households. It’s
widely assumed that many who lose a home to foreclosure become renters.
But since the recession began, there has been a five-fold increase in
“overcrowding” of remaining households — defined as more than one
person per room, according to the study.
That doubling-up is happening as families who lose their homes move
in with friends or family. In other cases, younger people have delayed
moving out on their own, instead staying with their parents until the
economy improves. Others who fail to find work after graduating from
college move back home.
The decline in households is weighing on both the
home buying and rental markets. Since the number of home foreclosures
began surging in 2007, the national homeownership rate has been
steadily falling. But renters also have been forced to double up or
move in with friends or family. That’s a major reason that the vacancy
rate for U.S. apartments stood at 8 percent in the first quarter, the
highest level since 1986, according to a report this week from Reis, a
real estate research firm.
Homeownership levels, meanwhile, continue to decline. New
foreclosures filings are running about 300,000 a month, according to
RealtyTrac. There are currently some 5 million homeowners that are 90
days or more past due on their mortgages, according to Fannie Mae chief
economist Doug Duncan.
In some cases, the loss of a house to foreclosure is leaving
families homeless, though there is little national data available on
how many are affected. A recent study
by the Department of Housing and Urban Development found family
homelessness on the rise since the recession began, with the biggest
increases in suburban and rural areas.
Other groups, like the National Alliance to End Homelessness, report
that a rising number of older adults are without a permanent place to
“The limited existing research tells a story of increasing homelessness among adults ages 50 and older,” the group said in a recent report.
The formation of new households isn’t expected to pick up again
until at least 2012, according to the MBA study, even as the population
continues to increase. Between 2005 and 2008, those 1.2 million
households were lost even as the population grew by 3.4 million.