US Homeownership Rate Drops To 1983 Levels: Here's Why

Zero Hedge ^ | 10/28/2014 | Tyler Durden

[SeekAndFind]

The last time US homeownership declined down to 64.4% (which the Census Bureau just reported is what US homeownership declined to from 64.7% in Q2), was back in the fourth quarter of 1983.

It goes without saying that this is about the bearishest news possible for those few who still believe in the American homewonership dream.

Of course, those who have been following real-time rental market trends would be all too aware there is no rebound coming to the homeownership rate. The reason is simple: increasingly fewer can afford to buy, instead having no choice but to rent, which in turn has pushed the median asking rent to record highs. In fact in the past two quarters, the asking rent was just $10 shy of its time highs at $756 per month.

 

But capital allocation preferences aside, while explaining the disparity between rental and homeownership in a world where Renting is the new American Dream, what the charts above don't explain is why there is no incremental demand from all those millions of young Americans who enter the population and, eventually, the workforce. At least on paper.

Earlier today, Bank of America in its Chart of the Day earlier was confused by precisely this:

Population growth of 25-34 year olds outpacing growth in the housing stock: The primary driver of household formation is population growth among 25 to 34 year olds. There is notable divergence with the growth in this age group and the growth in the housing stock. This suggests greater doubling up of households as a result of the recession and weak recovery. Unless doubling up turns into tripling up, household formation should recover over time, creating a need for greater building. Given tight credit conditions, this will tend to drive apartment construction more than single family construction. Either way, the housing stock is lagging well behind demographic fundamentals.

 

Yes, in theory, in a normal world, demand should increase over time. But the world is anything but normal.

Enter: the Millennials.

For the benefit of a very confused Bank of America, and everyone else who missed out weeked chart porn on the financial state of the Millennial, here are some of the key charts which explain why owning a home in the US has become a mirage for an entire generation of Americans. Incidentally, the largest generation in US history.

This is what is happening:

 

And this is why:

 

Bottom line: they may be homeless, but Millennials sure love their smartphones...

Much more here.

[sphinx]

Clearly we need a boost in the minimum wage ....

[sauropod]

.

[Buckeye McFrog]

On the other hand, mortgages were still based on more or less real criteria in 1983. So is this a bad thing?

[Gay State Conservative]

All part of the Rat Party's grand plan.Owners vote Republican,renters vote the Welfare Party.

[SeeSharp]

The reason is simple: increasingly fewer can afford to buy,

Coupled with the fact the government always does everything it can to keep home prices from falling.

[cripplecreek]

All my new neighbors are turning out to be retirees from outside the state. It seems kind of odd because we tax retirement savings here but they’ve all told me that being here ends up costing them less in other ways.

A retired Texas couple looked at the house directly behind me yesterday. The man wandered over yesterday while they were looking at the house to ask some questions. He said not making his usual 3 or 4 trips up here for hunting every year will save far more than the tax will cost him. He’s a former oil and gas man who “dabbles” and sees opportunity here.

[I want the USA back]

Have no fear. After the elections, 0bama will have more flexibility and will give FREE housing to his people. So Ja-shonda and Ty-jabonda can say “I got me a free 0bama home”

[woodbutcher1963]

I have an idea. Lets get Fannie Mae and Fredie Mac to reduce the qualification standards to buy a home. Lets make it so that you do not need a job. Lets forget about that you should need a gross income of X amount to be able to pay your mortgage and Home owners insurance. Lets also make the banks give people a mortgage with no down payment and ZERO percent interest. The banks have been unfair to minorities and women in particular. Lets make these things happen so that we can increase the home ownership percentage.

AFTER ALL WHAT COULD GO WRONG!

OH, bay the way (SARC).

[Grampa Dave]

First of all the credit standards have become incredibly strick.

In 2013, we applied for a refi and wanted one of the newer lower rare homes and some extra for the continual fixing up. The new loan amounted to about 1/8 of a good appraisal of our home, and the land was worth 3 times the loan. Our credit rating was 830, we never have been late in paying a bill, and our gross/net income based on retirement, ss, and minimum IRA distributions was well beyond the minimum income retirement. It took about 3 months to get the loan. We have had the same bank for close to 20 years. We know the manager and home loan officer on a first name basis. Still the government requirements forced them to go by the new rules step by step.

This year we took out a home equity loan from the same bank. The same bank that gets monthly direct deposits from our income sources. Our credit rating was still about 830. The same bank that processed and still has our 2013 loan. We had to go to SS, my former employer and where our IRAs are to get hard documentation of every cent of income. This time we had what is known as a hard appraisal, it took the guy and his wife 4 hours to do it. Their written appraisal ended up over 40 pages. Our home had gone up 70K since the last appraisal, partially due to the work we did after we got the loan last year. The property/land value alone was equal again to about 3 times the total of the two loans. This new line of credit loan took again about 3 months total time to get the loan.

A younger relative refied after 10 years of owning their present home. His income has doubled since the purchase, all credit cards even though used heavily are paid on time as well as all other bills. It took them over 3 months to get the loan. Like us, they had to hard document every cent of income. Property values for their home are higher than before the meltdown. Their land value alone equaled the amount of the new refi loan.

How many Americans can pass the newer and stricter loan requirements we face now?

Another reason why there are less home sales are the needs/wants of people, who can afford a home and rent instead. A brother of the relative above, is single and makes excellent money and has a very high credit rating. He works very hard and has zero desire to spend his free time and money in upkeep if he owned a home. His rental is in a great area, and all he pays besides his rent is his utilities which for him are minimal. If the hot water heater goes out, the landlord pays for the new one. If his home needs new windows or whatever, his landlord pays for them. The yard is maintained by the landlord and any exterior needs as well as interior needs.

He has his free time and his budget is simple and doesn’t have cover the normal Harry Homeowner upkeep expenses. He is not by himself re not wanting to be a homeowner.

[gspurlock]

They are missing one point regarding young people and home ownership: This generation has been deliberately educated to eschew private property. They have been indoctrinated in socialism for their entire education. Private property = greed, and greed is the source of all evil.

[randita]

With health insurance costing nearly as much as a mortgage payment, no wonder people aren’t buying.

[Pelham]

That’s a good list, but it wasn’t Fannie and Freddie that did that.

What you describe is what their rivals were doing, and their rivals were dominating the mortgage market during the bubble. Fannie and Freddie were still dealing in conforming loans, the sort that require proof of a job etc. Fannie and Freddie lost market share during the bubble because they weren’t handing out money to anyone who breathed.

[Pelham]

“On the other hand, mortgages were still based on more or less real criteria in 1983. “

That’s a very good point. In 1983 the vast majority of loans were conforming loans and those have always performed well. Conforming loans mean you aren’t given more debt than you can handle.

The innovations and financial engineering of the late 1990s and early 2000s gave us the exotic loans that became wildly popular during the bubble. In fact they were bubble fuel since without those loans the real estate market would have peaked around 2003 and the ensuing meltdown would not have been possible.