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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (45848)	11/18/2005 9:04:56 PM
From: GraceZ	Read Replies (2) \| Respond to of 110194

In your area, the mid-west, they have a 73% rate. I don't know if that is the theoretical limit. It has never been tested to this extent in the US. If we get a sharp correction in housing, I'd expect the percentage to drop, not rise. Individuals that are marginal will exit either because they are forced to or because they'll realize that they bought the bag. Marginal owners pushed into owning with buying subsidies may not have the ability to cover the considerable expense that comes with keeping up a property so I expect in a sharp downturn we'll see a lot of deferred maintenance. Foreclosures are always highest in the FHA lending programs. I agree that there are always people who will prefer for many reasons not to own their own homes. Sometimes it is simply a matter of timeline or personal circumstance. People enter and exit the age when they are prime candidates for owning as opposed to renting. Large cities have high percentages of their population of households who can't own a home, they receive housing benefits from the government that require that they rent. People get divorced....especially in situations where they are under financial distress. Back when supply was tight up where I live you'd listen to rumors of divorce just to get a jump on a good property because often that provided you with an opportunity to acquire a property at distressed prices. The real tell is the household formation rate which is dependant on the availability of affordable housing. The two tend to be correlated to a certain degree. People don't form new households when housing isn't available to them, they tend to double up with other family members and consolidate households. If there is a serious housing mismatch in bubble areas it isn't between renters who want to buy and affordable houses for sale, it is between renters and affordable, clean, modern rental units. We have a growing population which can't afford to buy and can't afford rental housing without subsidies or rent controls, the subsidies and rent controls tend to do two things: they keep rental prices of non controlled units higher than they otherwise would be in a free market, as well as reduce the new supply and reduce the quality. This helps to increase the population who can't afford the rent in a decent place to live. As much as cities have acknowledged this connection, it is almost impossible to exit these strategies once they are in place both for the cities who offer subsidies and controls, but even for those who receive them. I've seen section 8 housing that wouldn't fetch a third of the rent it gets if it was on the free market. People who receive the subsidy will not give it up, they'd rather live in a dump with it, than a decent place they had to pay the entire rent on. The same with rent control, I've seen friends trapped in dumps for many years just because they can't face paying the market rate for a decent place even when they can afford it. More people would choose to rent if they felt that the rental conditions were better for them. While the home builders have been able to answer the demand for more single family homes in a lot of areas (at higher prices of course) and high end apartments have been converting to condos at a fast clip the biggest shortfall is in rental units that below median households can afford in areas where they want to live. Just look at the financial stretching that renters have had to do to afford to live where they live: economagic.com As opposed to homeowners: economagic.com A financial obligations ratio of 28.8% as opposed to 16.37% for the homeowner. That makes me believe that we aren't going to get a lot more homeowners out of the group of renters left. OTOH it is this stretching which has forced many into employing some very risky strategies in order to buy when they might be better off renting for life. They see owning a home as a way to protect themselves from the inflation in rents that is squeezing them. Who knows if it works out for them. I personally think we back down on that homeownership ratio in the next few years, maybe drop down toward 66% or so....but that is just a guess.