Rents Soar To Record High As Homeownership Rate Plunges To 19 Year Low

Tyler Durden's picture




 

Each quarter, when we perform our regular update on trends in US homeownership and rents using Census Bureau data, we say that "The American Homeownership Dream is officially dead. Long live the New Normal American Dream: Renting." One thing we added in 2013 is that the American Dream has now officially became a full-blown nightmare after mortgage rates exploded, even if declining modestly afterward, and in the process pummeling the affordability of housing as well as grounding any new mortgage-funded transactions to a complete halt (don't believe us - just ask the tens of thousands of mortgage brokers let go by the TBTF banks in the past 6 months) while sending mortgage origination activity to record lows. Which is why it was not at all surprising to find that the just updated Q1 homeownership rate was 64.8% - the lowest in 19 years!

 

Furthermore, even as household formation has continued to implode (more on that in a subsequent post) despite the shrill promises of housing bulls who still have to realize that the transitory pick up in home prices has nothing to do with organic growth or a stable consumer, and all to do with the Fed's balance sheet, the now effectively finished REO-To-Rent program, and illegal offshore cash parked in the US, Americans have to live somewhere. That somewhere is as renters of Wall Street and other landlords. As the next chart shows, the median asking rent has soared to fresh records and hitting an all time high of $766 as of the first quarter.

 

Luckily Owner Equivalent Rent is largely adjusted (hedonically) by the Fed in its CPI calculation making it seem quite friendly, or else its all time highs may give the impression that inflation is not quite as dead as the Fed portrays it. Although don't tell that to renters in the Northeast, where the average rent just soared to $1,043, a record increase of 16%, or $147 compared to a year ago.

At least one entity is enjoying this wealth extraction from the middle class which no longer being able to afford buying a home is forced to hand over an ever greater portion of its paycheck to America's largest landlord - Wall Street's very own Blackstone.

 

Finally, why are any of these upward trends in significant jeopardy? Because while the 0.01% are getting wealthier by the day, everyone else... isn't. As can be seen on the chart below.

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Tue, 04/29/2014 - 14:26 | 4708828 tarsubil
tarsubil's picture

Living beneath your means will eliminate debt (a non-productive tool that rewards the rich and punishes the poor). If this was done on a national scale, it would destroy the finance industry, which is the primary reason for economic disparity.

Tue, 04/29/2014 - 11:20 | 4707831 Schmuck Raker
Schmuck Raker's picture

I don't understand the third graph; why would anyone want to rent a vacant "lot"?

Tue, 04/29/2014 - 12:03 | 4708041 toady
toady's picture

Grazing fees?

Parking lots?

Tue, 04/29/2014 - 11:23 | 4707847 JMT
JMT's picture

I don't know why people pay upwards of $500,000 to buy a "Co - Op" apartment (where you only own "shares" in a corporation) outside of Manhattan (and not in the chi chi parts of northwestern brooklyn where nannys push the children of the top 1% in $5,000 strollers)....  I looked at a few of these 'co op' apartments in Queens where a 'large by NYC standards' 900 square foot apartment in a very average neighborhood of Queens start at over $300,000 PLUS another $600 - $800 a month (every month as long as you live there) for maintenance which does not include utilties plus a co-op board must approve you and won't even accept your application if you are putting anything less than 20% down. 

Tue, 04/29/2014 - 14:07 | 4708754 stopthejunk1
stopthejunk1's picture

It sounds like you're saying, "I don't understand why anyone would want to live in New York.  It's so expensive."

 

Well, there are 9 million people living there.  Why dont' you ask some of them?  They will tell you pretty quickly.  

Tue, 04/29/2014 - 14:28 | 4708842 tarsubil
tarsubil's picture

They want to feel rich.

Tue, 04/29/2014 - 11:24 | 4707851 Bastiat
Bastiat's picture

Remember the "ownership society?".   Owned.

Tue, 04/29/2014 - 11:30 | 4707873 orangedrinkandchips
orangedrinkandchips's picture

It capitulated in '85.....when rates were in the TEENS.....now.....bizzaro '85 we have negative rates w/o adjusting for inflation!

 

Before, why people said "fuck it" were high rates....paying more interest than princ. per month....

Now, rates are great but who IN THEIR RIGHT MIND WANTS TO PAY TOP PRICE FOR A DEPRECIATING(ED) HOUSE?

 

Rent is like SELLING A NAKED CALL.....there is no limit to what these fuckers can/will charge for rent....until we all become squatters....or trash the place.....

 

fucked if you do, fucked if you dont........so dont take it personally folks....everyone gets fucked.

Tue, 04/29/2014 - 11:49 | 4707966 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Fuckin A!

Tue, 04/29/2014 - 11:35 | 4707893 SMC
SMC's picture

A few thoughts from rural living:

1. Always live below your means.
2. Repair before buying new.
3. Listen before speaking.
4. Help others and they will help you.
5. "Real" is in front of you - not on TV.

Tue, 04/29/2014 - 11:41 | 4707931 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

6. Have Ammo, tactical weps, beans, toilet paper

Tue, 04/29/2014 - 12:16 | 4708115 therearetoomany...
therearetoomanyidiots's picture

...fuel and the bible by your side.

Tue, 04/29/2014 - 14:04 | 4708741 stopthejunk1
stopthejunk1's picture

7. The more wives, the merrier.  

8. If she pretty, she ain't too young.

9. The animals do it so why can't we?

10. Please pass the teeth.

Tue, 04/29/2014 - 11:36 | 4707899 Baby Eating Dingo22
Baby Eating Dingo22's picture

But rising home prices are good for America.

No Inkjet Left Behind

Tue, 04/29/2014 - 11:52 | 4707984 GrinandBearit
GrinandBearit's picture

TPTB planned it this way.

Tue, 04/29/2014 - 11:54 | 4707991 Agent P
Agent P's picture

"The rent is too damn high!"

Tue, 04/29/2014 - 11:54 | 4707993 khakuda
khakuda's picture

Exactly why the Fed changed to the PCE from the CPI which has a larger weighting in rents.  So now, food, energy and housing are not core consumption.

Tue, 04/29/2014 - 11:54 | 4707996 Van Halen
Van Halen's picture

A question for the board: Could the low onwership/high rental numbers be in part due to the outrageous spending habits of Americans? Every one of my friends spend money like damned fools. I know for a fact that more than one have credit cards maxed out and second mortgages to keep the vacations, new cars, pools, and new furniture coming.

My point being that I don't believe that these people can't afford a house as much as they can't budget to pay for the house they get.

Tue, 04/29/2014 - 13:14 | 4708458 Pemaquid
Pemaquid's picture

Living beyond ones means is nothing new. The opposite is where one finds true contentment.

Tue, 04/29/2014 - 12:02 | 4708030 juggalo1
juggalo1's picture

I don't see this as a disturbing trend.  Ownership rates are still dropping, which is a good thing.  They were manipulated higher by lax lending standards and low real rates.  The increased rents will help support the higher home prices which ZH also claims are a bubble.  Meanwhile most people should be renters.  It allows them to move to pursue job opportunities.  As for missing out on equity appreciation, we've all seen how that worked out.  Equity appreciation is a lousy reason to buy a house.

Tue, 04/29/2014 - 12:14 | 4708099 therearetoomany...
therearetoomanyidiots's picture

Meh.   There still are lax lending standards.   You just need more money available on a monthly basis which people just do not have.  

Being in and around the mortgage industry, I can see FHAs still happening at quite a rate with 3% down loans.  

FHA is probably the most common loan right now because so many have defaulted or have terrible credit scores.   The number of people that are below 620 is confounding.   More and more we get loan requests from people that have atrocious scores, in the 4s and 5s.   THey've all had defaults or short sales or foreclosures in the past 3 years.  

You are fucked if you believe this is a good thing.    The point, I believe, is that prior to the push by Clinton and the progressive republicans to 'increase' ownership amongst those least able to afford it, a regular guy working a regular job IN THIS COUNTRY could afford a small house mortgage.    He made about 40-50k a year.   Saved some money on which he earned some decent interest.   All that made home ownership more attainable...our economic model did work until the northeastern educational elite took over...starting with Papa Bush.   It's been all NE ivy leaguers since.   

 

Tue, 04/29/2014 - 14:02 | 4708730 stopthejunk1
stopthejunk1's picture

I mostly agree, except for the idea that "our econmic model did work until..."  That's hogwash, our economic model has been failing for decades.  Inequality has been increasing since 1970; real wages have stagnated, and worker protections were gutted under Reagan.  Then Clinton signed NAFTA (which had been lurking unsigned for 40 years) and everybody since Reagan has refused to enforce the Sherman antitrust act in any meaningful way.  It has been bad for the little man for some time, and it keeps getting worse.  

Tue, 04/29/2014 - 12:04 | 4708040 Fiat Burner
Fiat Burner's picture

Once landlords put Chart #2 beside Chart #3 and realize their rent ask won't be getting a rent bid for much longer, the housing market will take a massive dump as these landloards unload their rental property.

Tue, 04/29/2014 - 12:08 | 4708068 ChargingHandle
ChargingHandle's picture

The Bureau of Labor Statistics reported yesterday that in 20% of American families in 2013, not one member of the family worked. 

Tue, 04/29/2014 - 12:10 | 4708081 Spungo
Spungo's picture

What was going on between 1985 and 1994? That seems like a deeper recession than the current one.

Tue, 04/29/2014 - 12:21 | 4708143 toady
toady's picture

Reagan.

Tue, 04/29/2014 - 14:23 | 4708816 Cthonic
Cthonic's picture

S&L crisis

Tue, 04/29/2014 - 12:20 | 4708134 Spungo
Spungo's picture

Also, why all the hate for investors owning real estate? REITS are not a new thing. They're at lesat 50 years old, and every country has them. They're nice because they give the common man a way of being a landlord without needing to deal with drug addict tenants.

Tue, 04/29/2014 - 12:25 | 4708174 Spungo
Spungo's picture

"WTF is the problem?  I've got a HOA and love it."

Most of them are run by nazi/communist fuckheads who have nothing better to do than hassle people. You can't put a flag on your house, you can't paint the fence any way you want, you can't use the kind of grass you want, you can't use certain halloween or christmas decorations, you can't leave your car parked outside of the garage. 

Tue, 04/29/2014 - 12:53 | 4708353 QE Abyss
QE Abyss's picture

I am a home owner in an HOA.  It is made up of 450 homes (not condos).  Most homes are 3 or 4 bedroom with 1 or 2 bathrooms on 6K sqft or 7k sqft. The homes were not a tract development, most built in 1945-1955, many custom and the HOA has been in existence since 1946.

My HOA are $15 per month, yes under $200 per year.  WHile I agree of the nazi type mentality and control of homes within the HOA, I must admit through my own research that crime is extremely low within the HOA and there are no bootleg remodels, or broken down cars in the driveway.   [Last I checked with LAPD, they could not find any crimes on the street I live in for the past 5 years except domestic violence]. As an LA native who wanted to be near the beach, but could not afford to be near the beach, I settled for Baldwin Hills 2 years ago before house prices went crazy.

When I was looking to purchase a condo in West LA, I was shocked to see the HOA fees were typically $300 to $500 per month for a 2bedroom crapshack built in the 80's - a time when US developers were using cheap Chinese plasterboard which is slowly rotting out of homes all over the US. 

 

 

Tue, 04/29/2014 - 12:33 | 4708235 mrdenis
mrdenis's picture

Best of all , thoes that think they own can be taxed out as well .......Oh wait that's what reverse mortgages are for ......

Tue, 04/29/2014 - 12:37 | 4708255 the grateful un...
the grateful unemployed's picture

the hedoic adjustment works against the Feds manipulated CPI, rents are high ( in part because hedge funds now own the property, and they won't lose money)  and asset prices are falling, and one problem feeds the other. if an investor is losing value on a rental property with a loan outstanding, their primary recourse is to raise the rent in order to square the balance sheet. (or we could be heading back to 2008)

the FED doesn't want that, and the government doesn't want that, so rent subsidies are put in place(HUD and Sec 8 to put a bid under the rental market - any commodity which is subsidized will cost more for those who don't receive the subsidy - you can subsidize a minority of consumers and influence the price for the majority - they do this with food as well - we are on a deflationay glide path - its a soft landing ahead, real real soft)

asset deflation with CPI (bad moon a) rising is the new normal. would you buy into RE rental units if you understood this? now that you're in how do you get out? there are cash buyers (notice most of the RE sales done now are cash) but you still have this problem, your assets are losing value, but its possible for you to accept that loss, because you have no paper at the bank. will the rent you derive offset the loss of asset value (minus taxes taxes taxes) so you are losing money more slowly this way, but it might be more prudent to move into something that doesn't lose investment value, like paper money. enter the fed...

just wait until money velocity goes negative

Tue, 04/29/2014 - 12:41 | 4708278 syntaxterror
syntaxterror's picture

As the dollar goes to ZERO, rent goes to infinity. Pretty simple.

Tue, 04/29/2014 - 13:01 | 4708389 message2gowri
message2gowri's picture

I like to Propose Congress New Legislation to support 3 Income Family(Man+Women1+Women2) if All three can find a Work we can save the Housing Market!! It is better than what FED doing with QE & Fanne and Frede!! 

Tue, 04/29/2014 - 13:08 | 4708434 the grateful un...
the grateful unemployed's picture

everyone should own as many robots as they please, and they can send these robots off to work everyday and keep the money they earn. right now the corporations are the only ones allowed to own robots. we need workers rights for private robot workers, to give them the same rights as corporate or government robots to compete for the job. you cant discriminate against robots either. robots can fight the wars against other robots as well. just buy a carpenter robot and it will build your house for you. do you need a housing market? save the robot market.

Tue, 04/29/2014 - 13:59 | 4708677 stopthejunk1
stopthejunk1's picture

There's nothing inherently wrong with renting.  Germans rent in droves, and they're one of the most financially healthy states in Europe.

 

In America, perhaps it is a good time to become a landlord.  It's a buyers market in real estate (outside of select "permanent bubble" areas like NYC or LA) and rents will indeed go up.  Rents will also rise when interest rates rise.  There are also a shit ton of tax deductions that landlords can take.  

 

By the way, the home mortgate interest deduction does not affect the home ownership rate.  Rates in countries with no such deduction, controlled for other factors, are exactly the same.  All it does is encourage people to borrow more than they should, to live in bigger houses than they need.  And it's a billion-dollar boon to the real estate agent cartel (which frankly should be investigated under RICO.)  It is past time to do away with the real estate mortgage interest deduction.

 

Anyway, 64% is PLENTY of people owning houses.  What do we want, 99%?  This is like the argument that "everybody should go to college."  Uh, no they shouldn't.  If you think they should, you ought to tour a state university once in a while.

Tue, 04/29/2014 - 14:50 | 4708911 conspicio
conspicio's picture

Also lost in the article is the underlying reason for ownership that spiked the table in the first place. Subprimes drove the number way up and as a number, the "owner" in all cases was not the human, but as we all know was THE BANK. So it would be great if the article, the government, the banks, et al...could be clear about the "owner" versus ownership in the article. A fee simple title holder is an owner. Someone living in a residence with a 5/1 ARM and 5% skin in the game? Census counts them as an owner. Dubious, but technically correct. On the flip side, the title holder who has no mortgagee (Like BlackRock, for instance) is also an owner even if the home it holds title to is vacant. And when they are not the title holder, they securitize that mortgage ad infinitum, which does nothing to affect their "owner" status. So I would have to guess that these numbers are even worse than the data portends and like most things run by the bureaucracy these days, a little lie here, a definition adjustment there, and pretty soon it all is meaningless but we base our opinions, shift our values, and revisit our baseline beliefs over fuzzy semantics, bastardized definitions, and the continued lack of a lingua franca between reality, lies, and clever bureaucratic marketing.

 

Tue, 04/29/2014 - 14:51 | 4708917 Aussiekiwi
Aussiekiwi's picture

I think the point being made is that home ownership rates are dropping at a time when the MSM is loudly proclaiming how much better every thing is, the question as to whether renting is better than buying is a completely different question.

 

Tue, 04/29/2014 - 14:22 | 4708812 besnook
besnook's picture

this is bullshit! the cpi says inflation is practically nonexistent. if you can't believe .gov who can you believe? your lying eyes?

Tue, 04/29/2014 - 14:24 | 4708819 MeelionDollerBogus
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