Houston, We Have A Problem.
And not just in Houston, But in San Diego, Denver, Chicago, New
England, and all over Florida.
The problem is the shrinking housing market as reflected in the
percentage of home ownership (lowest since 1967).
This is the result of several factors:
The Artificial Scarcity
Stagnant Household Incomes
House Prices At 4X Income
Stricter Lending Guidelines
Higher Cost Of Entitlements
"Big Money" Moving Into Residential Rentals
If I believed in conspiracy theories, I could make a good case for one
here. And it is pretty simple to understand. Since the Crash of '08 we
have had winners and losers, and the winners all seem to be on
Wall Street and the losers are the rest of us.
You may not think this is the case because you have done OK. Your
home value has recovered. You think everything is back to normal. Not
so. The housing market is anything but robust.
Robust Housing Market
For the Housing Market to be ROBUST we need two things: an
expanding supply of houses, and an expanding pool of buyers.
The housing market CANNOT grow by simply trading the existing
supply of houses amongst the existing homeowners. Growth needs
new blood. More houses. More buyers.
Some people think that the housing market is good because there has
been price increases year over year and a shortage of available houses
on the market. But this is an illusion.
The reason the supply is short is because existing homeowners either
can't or won't sell. They can't move if they wanted to. It's not that they
are happy where they are (some are of course) but rather they can't
make a move because of money, credit, or employment issues, AND a
shortage of houses available where they want to move to. So they stay
where they are.
To Move Or Not To Move
It used to be that people moved every five years on average. Now that
number is increasing to over seven years (and growing).
If there was an abundance of houses available, there would be no
price increases, but because of Artificial Scarcity, prices in certain
markets are increasing rapidly.
And as more of the existing housing supply gets put into the rental
pool, the situation will get worse.
Artificial Scarcity
One of the reasons for the Artificial Scarcity is that Home Builders are
not building homes. The amount that they would need to charge for a
new home is beyond the reach of there market. When entitlements
(permits, sewer connections, parks and schools, low income set
asides, etc.) exceed $100,000.00 per house, building an affordable
house becomes impossible. They can still build a house that will sell
for $500,000.00 or more, but a "starter" home is out of the question.
So here we have household income lower today than it was BEFORE the
Crash of '08 and the start of the Great Recession. And home prices are
increasing beyond 4X the income of the prospective home buyer, and
Lending Guidelines prohibit making a loan where the the housing
costs exceed 25% of monthly income. How can this lead to a healthy
housing market? it CANNOT. PERIOD.
As long as there are no new jobs in the Industrial Sector (those jobs
that pay a living wage) and the only job growth is in the Retail and
Service Sectors (where many earn minimum wage and work less than
30 hours per week) the ability to buy a house is reduced to about
ZERO.
The frosting on the cake is all the Big Money players moving into the
residential leasing area. They used to be "happy" owning shopping
centers and Class A office buildings. But big landowners, such as the
Irvine Company have become major apartment owners.
And these guys have major political clout. They want more renters.
They need the government to make homeownership LESS ATTRACTIVE
and harder to accomplish.
More stringent lending guidelines are not necessary to protect the
lenders. They are necessary to reduce the supply of qualified buyers.
Everything the government has done in the area of mortgage financing
over the last several years has had the effect of reducing the pool of
qualified buyers.
Who benefits from this? Do you benefit? Not unless you are a Big Bank,
a REIT, or other Wall Street entity benefiting from the RED HOT
residential income sector.
The solution is quite simple:
More Jobs
Cheaper Houses
Easier Qualifying for Buyers
If you are against any of these things, you are on the wrong side.
If median household income could go from around $50,000.00 per
year to $250,000.00 and if house prices could come in at about 2X
income, then the housing market could come back.
And to accomplish this, we need:
More, Better Paying Jobs
Lower (and Fewer) Entitlement Fees
In the final analysis, we need less government (help) and more
Entrepreneurship.
It is time for a change.
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