The Case-Shiller Home Price Index was released yesterday and after scratching my head and asking myself why I even bother to look at charts like this (too depressing–it is the same curve of my own business model), I came to the inevitable conclusion: open another bottle of wine; pull up a blanket–this ride is far from over. And the big question, (it came up in three distinctly different conversations today): When is this ride going to be over?
Impatience is setting in, big time. Everyone is forming their own opinions about where the housing market is going (hopefully to a better place than where it sits now). With the unstoppable growth in the American population over the next fifty years, there will be:
1.A pent up and poorly met demand, like the 1930s,
2.A slow growth in housing to match the needs of the marketplace,
3.A roller coaster ride of fed money and private capital trying to game the market and the system,
4.Or “Return with us now to those thrilling days of yesteryear” where we build like crazy, inflate prices, go bust then do it all over again, and again, and again (sound familiar Tonto?).
The big issue today is a lack of clarity in the marketplace, foreclosures, the cheapest housing in years, rental versus ownership – situation abnormal. Sure the next 100 million Americans (thank you Joel Kotkin, it’s all your fault) will need places to live and shop and work, but there is not a Central Planner in the world that could ever figure that one out, no matter how smart you think you are in Washington. There are fewer and fewer qualified buyers for more and more available housing units – what would Ludwig von Mises do? Probably have a good chuckle – history does repeat itself, itself, itself. "Ludwig, how is that Market is Supreme thing. Yeah, it does work, you may not like it but there it is." It is now no longer a regional problem but, like a virus, has begun to infect everyone everywhere (think Ireland, Portugal, West Covina).
It is interesting that a few bold thinkers are now challenging the American dream of homeownership, the fundamental tenant of the American psyche since WWII. In 2000 the average rate of homeownership in New York City was about 31%, meaning 69% rented, in Chicago the ratio was 43% owned to 57% rental and in Los Angeles 62% rented. I would offer that in the last ten years this number has not changed much.
Hanley Wood Market Intelligence said that national homeownership today is at 67% almost the exact opposite of the large city trends in renters versus owners. But in 1960 ownership was at 62 % – not a significant difference in fifty years. So what is the immediate future?
It will be easier to find funding for rental units than for single family units. Many for sale condominium projects are now converting to rental just to stay alive. And throughout the country, large regions (the suburban ring areas especially) are now two story detached single-family rentals (by foreclosure or hard choice). These units are part of the housing mix that is meeting the demands of the ongoing growth in this country. They are now horizontal apartment complexes not vertical.
Not everyone wants to live in a city, especially a big city. Not everyone wants to own a house, especially now. Not everyone wants to rent, but many will have to. What I am waiting for is how the building industry will address this fundamental American issue. I do not believe the government has a clue.
Stay tuned . . . .