Homeownership, investors and the "pent up" phenomenon
Several (somewhat related) trends to chew over:
A recent study by the Research Institute for Housing America, a nonprofit arm of the Mortgage Bankers Association, says we can probably expect "further notable declines in homeownership rates in the United States." The rate jumped during the housing bubble -- pumped up by lax lending terms -- and has slid backward since.
Though it's possible that decline is over, the study's authors write, they think a drop of as much as 1 to 2 percentage points over the next few years is more likely.
As homeownership falls, more houses end up with landlords. One clue to investor activity: One out of every five homes changing hands in the Baltimore metro region in June were bought with cash, according to Metropolitan Regional Information Systems' stats arm. (Investors are sure that statistic includes so-called "hard money" loans, which are pretty much the only financing available to real estate investors these days and usually look like cash at the settlement table.)It's possible the homeownership rate would be different -- lower or higher -- if not for the "pent up" phenomenon of would-be buyers and would-be sellers stuck in place. A recent Wonk poll that asked readers if they're feeling pent up drew a lot of "yes" votes -- nearly two-thirds of those who took the poll.
Most popular choice among the pent-up crowd: "I would sell and then buy if market conditions were different," picked by 28 percent of poll-takers.
People who want to sell but not buy afterward accounted for 20 percent of the vote.
Pent-up buyers with nothing to sell were 14 percent of the vote.
Not scientific, naturally -- pent-up folks are probably more likely to be reading a real estate blog. But it's interesting nonetheless.
Wonk reader Art points out that some pent-up sellers have managed by turning landlord, aided by rising rents. "Several of my potential real estate clients have opted to rent their houses instead of selling them," he wrote. "They are hoping the market prices eventually come back to where they can afford to sell."
Others are sticking it out where they are. Chris writes, "I would love to sell right now, but my wife and I are underwater on our mortgage by about $40,000. We are paying extra each month on the the principal balance to try and catch up so we can sell. I hope prices stabilize soon, but not holding my breath. We need a bigger home because we started a family."
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Comments
I have several friends that just purchased or are in the process of purchasing a 2nd house. They are buying bigger places, but renting out the other. It seemed to all happen at once, five couples within a month!
Posted by: Summer | July 29, 2011 8:04 AM
I live in Eldersburg, Carroll County and I am amazed at the rate of new home building going on. We have a fairly large, one car garage townhouse ($260K to start) community and a $300K single family home community being built while many, many houses remain unsold all over the place. A three bedroom townhouse/condominium community has languished for over a year with minimal sales. Things aren't getting any better, but hope seems to be springing eternal around here!
Posted by: BMAC1206 | July 29, 2011 1:30 PM
@BMAC - that story is hilarious. overpriced attached housing with a Home Owners Association (HOA)--just what everyone wants, right? Ha.
I read housingbubbleblog (Jamie has a link to it on the sidebar of this blog) and they frequently talk over there about how HOAs really kill the deal when you go to sell. And how the community areas and services provided by the HOA are no better than typical public services. Not to mention how poorly built most of the new "communities" are. Great cash grab for the community developer (cram lots of overpriced new townhouses onto a fairly small parcel of land). Bad buy in terms of long term value.
Posted by: chappy10 | July 30, 2011 2:53 AM
There are three different issues at play here, I think.
1) Cost of home ownership relative to renting.
2) Mobility of workforce.
3) "Upward housing mobility," i.e. owners wanting to buy bigger/more expensive houses.
Each has different effects on "pent up" demand.
Posted by: Doug | August 2, 2011 8:35 AM