The census report released today shows a decline in the home ownership rate to a low of 63.7% (https://www.census.gov/housing/hvs/files/qtr115/currenthvspress.pdf).
The notion that the lack of demand for mortgages from main street America, (despite interest rates hovering at 3.75%), is due to the lack of qualified home buyers, appears to be taking hold. In my article on housing predictions from 2010, I wrote:
“The longer term consequences of an unstable residential real estate market may be more serious than just the destruction of individual wealth. The ideal of middle class home ownership may be at stake. The census bureau reported a 7% decline in national rental vacancy rates in 2010, along with an overall decline of 0.7% in home ownership rates compared to a year ago. There were fewer “organic” buyers, more renters and more investment buyers in the market in 2010 and I expect this trend to continue into 2011. Are we at the beginning of a sociological movement away from middle class home ownership and towards a cultural split between the investment property landlords and their renters both of whom may have less personal investment in neighborhood security, local schools and shared public facilities compared to primary homeowners.”
Now it is 2015, 7 years into the economic cycle. Millions of jobs have been recovered and interest rates have been below 5% since early 2011.
Even with strong rent inflation the demand for mortgages from main street America, especially amongst first time home buyers, has never been this low. Demand is back to 2000 levels when rates were 8%. If you remove the non historical average of cash buyers from the market, the demand for existing homes looks even worse.
From Professor Anthony Sanders:
New home sales have also suffered (down a whopping 80% plus from the high with marginal recovery since), primarily due to their high price tags.
A host of reasons have been blamed for the poor demand including tight lending, low supply, winter, debt default, etc etc etc. Now housing pundits seem to have finally come to the conclusion that weak demand is because people just don’t make enough money.
See also my interview with Diana Olick from CNBC last year: https://www.youtube.com/watch?v=o9O_FDLPdgA&t=10m35s
I hope all the economist, professors, financial media, housing analyst can now agree that housing demand is really about incomes and liquid assets and that more time is needed to have a “Housing Nirvana recovery” that some have predicted.
As we look toward the future we do see some positive signs. Net housing demand should be better in the 2020-2024 time frame because there will be more dual income households. Other factors come into play, however, such as timing of economic cycles, rates and world events. We should see also increased demand from our young working force as they become more settled in life, married and ready to buy.
Tight Lending was a myth and it’s slowly dying away. The rise of new home ownership will result from wage growth and increased liquid assets, not from financial engineering.
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988.