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Rental Armageddon Continues
Submitted by Doctor Housing Bubble,
The Federal Reserve recently released household net worth figures and what was found in the report continues to follow the theme regarding a shrinking middle class. Wealth jumped nicely at the upper-end of the income spectrum but overall, the cubicle hamster isn’t doing all that well. The recent improvement in home values has helped but this largely has helped investors since in the last decade we have gained 10,000,000 renting households while losing 1,000,000 homeowners. The figures are interesting and are already creeping up in the pontificating that comes with any political season. At the core, a healthy housing market is one where owner-occupied buyers dominate the bulk of home sales. That is simply not the case. This is how you have well paid tech workers in San Francisco cramming into a 2-bedroom apartment like a clown car simply to get by. One thing that is certain from the overall trend is that larger investors are pulling back from the market dramatically.
Investors dominate the market
One interesting highlight that is occurring is that smaller time investors, those that purchase 10 or fewer properties per year are getting into the game while the bigger players back out. The television ads and radio shows are now screaming (for a few years now) how awesome it is to get into the flip/sell/buy real estate game.
First, it might be useful to see how the big money is pulling back:
The big money is pulling back significantly. Yet investors are still a big part of the market:
“(Wolf Street) The homeownership rate in 2014, not seasonally adjusted, plunged by 1.2 percentage points to 64%, the largest annual drop in the history of the data series going back to 1965. And in the first quarter of 2015, it dropped to 63.7%, according to the Commerce Department, the lowest since Q2 of 1990, unwinding 25 years of the American Dream.
The highest ownership rates were in the Midwest at 68.6%. The lowest were in the West at 58.5%, which includes California where homes have become immensely expensive, and the American Dream a phrase tarnished with cynicism.”
So for now, if you want to play in the California real estate game, you have to pay. But overall, prices on real estate are up pretty much across the country. It is shocking to see how big of an impact investors are having across various states:
Hawaii of course is usually a second home trophy location. You don’t get more landlocked than an island. And for cash buyers, the foreign money is a big player:
A big portion as reported by the NAR is investor buying from an international background. Many are using the property as a second home. I’ve received a large number of e-mails talking about people seeing “ghost” properties where someone bought the place, but no one is living in the house. At times, some people will go a year without seeing someone set foot in the property.
Of course the Fed report points out that real estate was the largest net worth driver over the last few years (too bad we are reaching generational lows in homeownership):
The homeownership rate is back to where it was 25 years ago. And as we have mentioned, you would think builders would be adding more new homes but for what? They realize that many Millennials are not in the market for more expensive properties and many are living at home with their parents. What builders are building is multi-unit properties to meet the changing demographics out there. Rental Armageddon continues and in places like California, the homeownership rate continues to become a tougher proposition.
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I think you don't get LESS landlocked than an island.
Fuedalism 2.0... the rentier class (bankers and financiers) don't actually know how to do anything else...
well, the rent is too damn high and the guillotine builders have been out of work long enough....
ok. but one question: what would the "natural" level of homeownership be in the US if the USG would not have been pushing - with trillions - homeownership in the last 50 years?
I understand it started with the returning WWII G.I.s, and then went on with Fannie Mae and Freddie Mac and lots and lots of laws (including tax rebates) and of course... money
all in all, decades of... I'm sorry, this might hurt... subsidies. (you are a farmer: what happens if you take a subsidy away? or, even worse: do you need a subsidy after you have "built up" national capacity?)
bankers and financiers are for sure culprits in this blame game. but I remember several presidents saying: "everybody ought to have a home" and people invariably cheered, didn't they? or was there criticism that I, from afar, missed?
from a "Rest of The World" perspective, the typical freaking 30-years low-rate state-guaranteed mortgage was the Wonder Of The Ages as much as the American Middle Class
(of course, an interesting law could now be that whatever has been financed this way should not be sold to corporates. though... would it help... prices?)
So you agree with me, that fucking around with true price discovery leads to very bad consequences?
I am against all subsidies asshole, unlike many of my colleagues, we don't depend on any.
Eventually compensation will return to productive people who actually provide goods and services of real value. Either way, I know my family and I will continue to eat well.
Same as it ever was...
one of the reasons I joined this strange club of ZH commentary wasn't because lots of writings here are the equivalent of public restroom graffiti, it was to cheer you when you mentioned that fucking around with price discovery has consequences
nevertheless, I'm a hobby historian, too
fucking around with price discovery has a tradition, in the US
it started with an early federal gov nearly completely dependent on tariffs, it went on with even higher tariffs during the time when key industries were pushed up, sheltering them from foreign competition, it went further lowering them when they were ready, then up again during the depression and then down again after WWII
and so with US RE. or with that immense battle that we, Europe and the US, still have about food (no, not your products) (and my stance is that most food should be grown on the same continent)
my point is that it is already highly political. (criticism from an ultra-liberal point of view is fine, but sometimes you also need a glimpse of... reality)
sheltering them from foreign competition...
If a nation state has any duty at all it is to shelter it's populace from foreign competition, at least to a degree. If not then it exists only for an elite and their intrests, which is of course true in practice but that's not how it should be. "Nations" as economic units doesn't work for anyone but the Oligarchy.
Welcome to Plantation America.
yer,ghordius but if ur suggesting house ownership would be lower with less govt interference via freddy/fanny et al, i could argue home ownership would be higher if not for govt interference in building standards via building standard regulations and compulsory insurance
@lawofprickness
"I am against all subsidies asshole, unlike many of my colleagues, we don't depend on any."
Really? Then how do you eat? We all reap where we didn't sow somewhere when it comes to transfer payments. Stop being such a fastidious prick. You're finding enemies where there are none.
ok. but one question: what would the "natural" level of home ownership be in the US if the USG would not have been pushing - with trillions - home ownership in the last 50 years?
The pushing of home ownership through incentives doesn't come close to making up for lost purchasing power. In the absence of rentier feudalism, property ownership would be higher than it is today and a larger portion of the lower classes would be among the owner class.
True, but they'd live in shacks. Just like their ancestors did, down south, before they moved to the inner cities, up north, to live in Section 8 housing. Shacks, like they still have down in Mexico. OTOH, mostly white tax slaves would save a lot more of their income that's been diverted to feed the permanent government underclass.
Ghordius, I think you are correct.
I think that, during most of the history of the USA, most people did not own their home or land. There were a lot of home and land owners during the period when the Europeans were still taking land away from the Native Americans, but after that, the percentage of owners dropped.
And the G.I. Bill did change that. It was a way to help prevent a post-WW2 Depression like the post WW-1 Depression, by enticing people to buy a lot of stuff. Because a lot of the stuff people buy is to furnish and maintain their home. (And to drive to and from it.)
Lastly, I think that, during most of human history, most people lived in homes in which several generations shared the home. "The American Dream" of each husband-and-wife having their own house is not the historical norm.
Barney Frank and Chris Dodd's nostrils are flaring......CRA II cant be too far off.
We need a reset.
We tried to have one 7 years ago. Ben said no.
Ben & Yellen have only temporally waylaid the inevitable, nothing more...
Rents to the moon providing the income to monied interests that bonds had previously provided...all at the expense of America's renting class...typically the poorest. Thanks Fed.
http://econimica.blogspot.com/2015/04/fed-makes-renters-pay-americas-billsand.html
Well the serfs can always grow food and use that to pay their overlords
Sharecropping never really stopped...
In the future, we will all live in housing futures.
Pretty amazing that difference between a complete bubble and a generation low in home ownership is only 5.5pts (63.7% - 69.2%).
That chart is at a generational low and looks like it should reverse. The only way I see reversal happening is a student loan jubilee or broader debt jubilee / monetary reset and property owners fighting the banks to maintain possession and ownership during the reset period.
You can buy an acre in the country in for a month's rent in NYC or SF.
Go figure.
And fewer zioqueers per square mile as a bonus.
The financial class killed the economy, now they're picking over the corpse
" Winning! "
Find a fannie or freddie empty home and move in. Change the locks and get a special warranty deed from "Goldman Wells REAL ESTATE TRUST" and there you go.
Foreclosure is in big banks name but within 60-90 days deed goes to fannie or freddie. That is when you swoop in and take possession. Usually they have painted, carpeted and made all repairs!
Heard this was going on in....USA. Rent is for suckers...
My wifes "tech" cousin 4 roommates 4k a month 2 bedrooms downtown SF.
1000 each! Hope the roommates are hot tech babe's.
Wait there are no hot tech babe's.
Fuck it.
Sounds like my old dorm suite that had two bedrooms and a common living area. 2 students to each bedroom.
It's just like college, but with having to work instead of oversleep and miss class.
Anyone here of the HELOC bomb that will be going off this comming year and next? Ten year drawout HELOCs taken out in 05 and 06 are set to roll over into there payback mode. A large number homeowners will be hit with large monthly payments that could force many into forclosure. Boom.
http://realtyprox.com/news/heloc-next-ticking-bomb.html
I am sure that will deflate the "new" bubble here in Northern Nevada real quick. I am sure there are also a bunch of 7/1 ARM's that were taken out right before the crash in 07-08 that are resetting or in the process of resetting that will send payment shock through the system as well.
Internal modifications are prevalent now. Some banks contact "owners" who are nearing the draw period and get the mod paperwork started, on current accounts.
Typical schmoe: I thought my $250 HELOC payment was paying off the $150k in 10 years.
I guess everything is just TBTF. Nothing to see here, move along.
As housing prices (in most places) have been going up the last two to three years, the aging HELOCs should be O.K. as the borrowers will be able to do a conventional refi to pay off the HELOC.....at least at this time. But I probably would not be feeling too good about HELOCs that have hit EOD in 6 months or so.
I would like to see a chart of "% homeowners with no mortgage debt"
Nothing but down for decades. Can't find a chart, yet.
http://aimgroup.com/2013/01/10/nearly-30-percent-of-u-s-homeowners-have-...
Total mortgage debt.
http://bitethebulletinvesting.com/bbi_sandbox/wp-content/uploads/2014/05...
You answered your own question its 100%.
Since 1971 and the credit explosion since, we have ALL debauched the Queen's English such that nobody knows what they are saying anymore.
Homeowner means just that, you have the title to the property.
If you still have a mortgage, the bank has the title and the bank is the home owner, NOT you. See how the language has been debased? but its not just housing....
People say "I bought a new car". In 1955 that meant, I went to the dealer with $600 dollars in my pocket, saw a car I liked, paid the dealer, he gave me the ownership papers and I drove my new car home.
In 2015 when someone says "I bought a new car" the translation is, my bank (credit union, Ford Credit etc) bought a new car and I am leasing-to-own it from them.
Since 1971 nobody owns anything.
I'm 52 this year. Of my contemporaries that I went to university with, about 30% of us OWN a property. The rest say they own but they really mean the bank owns it and they rent-to-own from the bank.
You see what I mean.
:)
Squid
SAID AS ARE ALSO CHILDREN FOR
but here is my question:
Does this mean that the rental market profit margin is collapsing? Why is it that the corporate investors are pulling back? Do they believe that the influx of illegals will lead to more people buying homes???? LOL... just kidding............ but SERIOUSLY. What are we talking about here? For the average person out here how does this affect the average person walking around out here.
Typically it means the low hanging fruit has been picked (and eaten)
The large 'instituional' investor splashed money into REITS which in turn buy up properties.
The margins of rent collection are getting squeezed to a point where the attractive yields aren't there any longer for that sort of glut of money.
However, small scale investors will continue to buy/flip or accumulate rental properties.
There is a certain elasticity to the rental market. Rents go up, more people double up (meaning getting room mates to share the costs) until the local average income is too strained. Then rents level off and even drop a bit because landlords know it is better to make less than 'top of market' rent in order to keep a tenant in place for the long term.
So for the 'average person walking around out there' you can expect to see more cars parked in driveways and at the street curbs as more people move into and share existing living spaces. It sort of trashs a neighborhood in that tree lined streets become rows of parked cars. And the 'pride of ownership' appearance of how the dwelling and landscape are maintained ususally takes a dive unless there is zoning to maintain a certain level of care. So expect more trash blowing around, more dog shit on the sidewalks (for those rentals actually allowing pets at all) and less neighborhood cohesion.
Eventually, more multi units get built because there is enough demand. and the multi units tend to cost less per square foot to build which in turn lowers the break even level of rent charged.
San Francisco and the surrounding is a horror show because land is so limited and bridges create more 'choke points' than what you have in L.A. and San Diego where sprawl has more of a chance to supply additional housing.
Remember that this is a 'return to levels 25 years ago'. It is not the 'black swan' in and of it's self.
The answer is to allow the student debt to be rolled into a mortgage at the time of a home purchase. Make it mandatory that the home be lived in for at least 10 years before being sold or the student loan returns to its original state minus what has been paid.
The answer is a fortified farmhouse on a ridge crammed with weapons.
I'm more of a Cave Man, myself. :-)
Your right; exposure is annihilation these days