Is Home Ownership Decline Good or Bad for the Economy?
- March 29, 2017
- Author: Tom K Wilson
Homeownership reached a peak of 69.2% at the top of the credit bubble. It is now down to 63.7%. Is that good or bad for the economy? Most would agree that we probably gave out more loans than we should have, therefore, contributing to the crash. I feel that the source of the problem was a decades long and ever increasing federal policy (yes, both parties) of promoting the American dream of homeownership for everyone whether they could afford it or not. It is good for votes. The banks and Wall Street who got most of the blame were just downstream components that amplified the problem because the Feds had taken away their risk.
This week, the Rosen Consulting Group reported that new housing was only 15.6% of the GDP, a $300 billion drag on the economy last year; traditionally housing has been a 19% component of GDP.
However, are we missing some key elements here? Our housing starts last year were 1.2 million units vs. a 1.7 million demand. So it appears to me that homeownership demand is not the pacing factor. For various reasons, builders are not building; factors include tighter construction financing and still being gun shy from the last crash that took down so many developers who believed that the market was going to climb forever…...until it didn’t.
I think lower homeownership has some positive overlooked contributions to the economy including the real estate property management industry, brokerage houses transactions for investors, rehab and make ready employment, and income for investors that reduce the eventual burden on society for dependency. Certainly it is a boon to investors. I acknowledge that I’m very biased!
Bruce Norris of The Norris Group and well known timing expert, thinks that homeownership will drop to 60% before we turn around based on demographics. Dr. Doug Duncan, Chief Economist of Fannie Mae feels that 65% is probably a healthy target, however, it may take quite a while to get back there. His staff’s research indicates that seniors are keeping their homes longer and that millennials are just delaying ownership rather than taking a never position so it may not reach 60%. Both of these experts have a great track record of predictions. And if anyone tells you that they know how this is going to play out, run like heck.
Read more HERE in the Wall Street Journal
