Wednesday, April 29, 2015

Although It Doesn't Seem Like It, Homeownership in America Has Returned to Normal

Homeownership rates in America are much lower than just a few short years ago.

Yet homeownership rates are now normal when viewed from a historical perspective.

How can this be?

Well, the answer is simple. The first several years of the new millennium weren't normal.

In fact, although destructive to the financial health of countless individual American families and our nation as a whole, the housing bubble was indeed a one time fiasco, albeit an enormous one.

And as a result, an entire generation of Americans came to erroneously believe that normal meant what was happening between the middle 1990's and the early 2000's. Home prices escalated more from 1995 through 2006 than they had in the prior 100 years. In fact, during that boom period they more than doubled in inflation adjusted terms after essentially having been flat for the entire prior hundred years plus.

Artificial housing demand was stimulated by buckets of 'free money' there for the taking. This abundance of 'free money' in turn created unsustainable and artificial demand which caused home prices to increase to unsustainable levels. Buyers of the 'American Dream' with little or no saved money became temporarily 'happy homeowners' --- until the unaffordable fiasco ended, that is.

Then the bubble burst, and foreclosures and a lousy high unemployment economy became the new 'normal' throughout our wonderful land. We're still sobering up today and will be for some time to come --- maybe a long time.

The Homeownership Rate Is Now The Lowest Since 1989, But There's a Silver Lining puts the story of American housing in its proper perspective:

"The U.S. homeownership rate continued to decline in 2015, hitting its lowest level since 1989. But economists saw a silver lining in that number.

The seasonally adjusted homeownership rate declined to 63.8% in the first quarter of 2015 compared with 65% in the first quarter of 2014, according to estimates published by the Commerce Department on Tuesday.
For the second consecutive quarter, the number of total households–renters and owners–jumped significantly. Because many of those new households are renting, that can drive down the homeownership rate as a percentage of total households, while providing a glimmer of hope in the long term.

The report estimated that renter households increased by more than 1.8 million from the first quarter of 2014, while the number of owner households decreased by 386,000. . . .

Economists have been waiting for 20-somethings to emerge from their parents’ basements and begin renting on their own. That is important for the owner-occupied market because, eventually, those renters will likely buy homes.

“Many of those new renter households will become homeowners, but probably not soon,” said Jed Kolko, chief economist at Trulia.

The homeownership rate has fallen steadily since 2005, when it peaked at 69.2%. That followed a decade long campaign to expand the homeownership rate, launched by President Bill Clinton in 1995 and embraced by President George W. Bush in the early 2000s.

Economists said that they expect the homeownership rate to plateau at some point in the coming months but that it will likely be a long wait before it improves significantly. In part that is because people who went through foreclosure are struggling to repair their credit and accumulate down payments to return. Younger people are also putting off marriage and children and thus homeownership."

Summing Up

Housing should not be viewed by individuals as an investment -- at least not a good one.

And excessive borrowing to purchase that 'dream home' can be hazardous to a person's financial health -- the dream can all too easily become a nightmare.

Government policies and easy credit created the conditions for the recent housing debacle for which we'll be paying for a long time to come.

The recent recession and current lousy economic recovery in large part are results of this government enabled housing debacle.

Let's hope the lessons have been learned by one and all, both as individuals and as government officials, with respect to the effects of excessive and speculative borrowing and living beyond our means.

That's my take.

Thanks. Bob.

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