Low Home Ownership Rate Hurting the Economy

Coming out of most economic downturns, home building is one of the key locomotives to power the economy. Housing is sort of the ultimate durable good, where during downturns demand builds up, and then has a powerful upward force on the economy as the pent-up demand is released.

Given that almost all houses are financed rather than bought with cash, the sector is exquisitely interest-rate sensitive. However, with the rate of home ownership falling, residential investment (RI) will not be a very powerful engine this time around.

First, let me present the following graph showing that historically what has been one of the key forces behind both going into and coming out of recessions -- it shows the history of housing starts over the last 40 years. Notice that housing starts, and thus residential investment, tends to fall off sharply before the start of most recessions (the dot.com bust induced 2001 recession the major exception) but then picks up sharply coming out of a recession, with the bottom hit before the recession is officially over most of the time. Note that single-family homes (red line), which are more likely to be owner occupied, were particularly strong from 1995 to the end of 2006.



This was in large part because the homeownership rate was expanding, as is seen in the second graph. From 1995 to 2005 the home ownership rate rose from under 64% to over 69%, or at about 0.5% per year.

With a population of about 300 million, and about 2.4 people per household, that means there are about 125 million households. The population is also growing at about 3 million per year, meaning that if the home ownership rate had stayed constant at 64%, we would have had a demand for about 800,000 new homes a year (3,000,000/2.4 * 0.64), but the increase in the home ownership rate boosted demand by about 500,000 a year to 1.3 million.

Now, as the price of houses is falling and people are walking way or getting foreclosed on, the home ownership rate is falling at about 0.5% per year, thus subtracting about 500,000 a year from demand, leaving it at about 300,000.



If a household does not own its house, it has to rent. If 64% were home owners, then it logically follows that 36% were renters, and that if there were no change in the home ownership rate, then demand for new apartments would have been 450,000 (3,000,000/2.4 * 0.36). By the end of the process the number would have been 375,500, as that 36% shrank to 31%.

However, if the home ownership total is going up by 500,000 a year, that means that the demand for apartments had to be actually falling by 50,000 a year at the start and growing 112,500 by 2005. Indeed, during this period, the total number of rental units did stop growing, as is shown in the third graph, but it did not fall at anything close to the 50,000 a year pace, let alone a 112,500 pace.

It’s not just a slowdown in new construction of apartments, but also condo conversions (and the tearing down of some units as well). However, the net result was a rising number of rental vacancies (shown as the pink part of the graph). That is going to put downward pressure on rents. Since rent, both "rent" rent paid to landlords and "owners equivalent" rent, what the government considers you are paying yourself for living in your own home for calculating inflation make up over 30% of the CPI, and almost 40% of the CPI excluding food and energy. It is a key reason that inflation is likely to stay low, particularly at the core level for some time to come.

This is also extremely bad news for the owners of apartments, like the big apartment REITs such as Equity Residential (EQR) and Apartment Investors (AIV). Since the peak of the housing market, the number of rental units has increased dramatically. Is that because people are breaking ground on lots of big apartment buildings?

No. Refer back to the first graph -- it's not like there has been a big increase in the difference between total housing starts (including apartments and condos) and the number of single-family starts. Rather, what we have seen is a rash of condo reconversions, where units that were originally planned to be condos are turned in to rental units. Sometimes this is done by the developer, other times it is the individual condo owner who can't sell and decides to rent it out (depending on the condo association rules). Also, many of the people who have been buying up the previously foreclosed houses have been investors, who plan to rent them out, rather than live in the houses they buy.



Housing is both an item we consume (housing services) and an asset -- for most people, their single most important asset. Well, the value of any asset is the value of all future cash flows from the asset, discounted back to the present. In the case of a house, it is the value of not having to pay rent to live in the place.

One of the most important indicators that we were in a housing bubble was the fact that the ratio of housing prices-to-rents got way out of whack. This is shown in the next graph. The crash in housing prices has brought the price to rent ratio back down to near normal levels. However, with pressure on rents from the high vacancy rate, housing prices have a moving (falling) target to be shooting at.



But wait, the news gets worse! This recession has been particularly hard on young people. With their 401-Ks hurt by the fall in the stock market, and the value of their houses way down, people in their 60’s -- if they still have their jobs -- are not about to quit and retire. They simply cannot afford to. That has meant fewer jobs available for people just getting out of college (and forget about getting a job if you only have a High School Diploma).

If young people can’t get a job, they tend to move back in with their parents, or perhaps double or triple up with their friends. This means that the rate of household formation slows down and the average size of the household grows. If the size of the average household were to increase from 2.4 people to 2.5 people (not a very large increase), it would result in a total of 5 million fewer households in a population of 300 million. This would more than offset the number of new households being formed due to population growth.

Given this, it is hard to see housing starts, and thus residential investment, climbing back to anything close to what we saw in the earlier part of the decade. While it is true that residential investment was only 2.67% of GDP in the second quarter, that is the lowest level on record, and is a far cry from its peak of over 6.3% in the boom. However, I suspect that we will be lucky to see it get back up to its historical average level of about 4.5% of GDP.

It also means that a return to the sort of profitability the big homebuilders like D.R. Horton (DHI) and Lennar (LEN) saw earlier this decade is going to be almost impossible. Yeah, those stocks got slaughtered last year, but have since increased dramatically, some by more than 5x. This increase seems to me to be a triumph of hope over reality.

Homebuilding is much more important than the profits of a few relatively small firms in the S&P 500, though. It is historically what drives the economy out of recessions. While just seeing residential investment halt its decline will be a major boost to the economy (the absence of a negative is a positive) it is not the same thing as an actual rebound. A declining homeownership rate is one of the key reasons that this recovery is going to be exceptionally anemic, but also why inflation is not going to be a major problem for some time to come.

Comments

[TradingHelp...:]

Really good summary. Nice work.

Oct 05 01:54 PM

[CautiousInv...:]

The real problem is rooted in artificially expanding home ownership to its peak of around 69% through horribly loose credit standards; we are now paying the price of inflating home ownership to unsustainable levels through lending to many that should not have been extended credit. There other problems as well.

The result is that now that we have too many single family homes, too many apartments and too many condominiums, the last thing we need to do is further this structural imbalance by building more homes. Each new home that is built deepens the challenge of those sitting on properties for either sale or rent.

Oct 05 02:24 PM

[concrete guy:]

Very interesting read. Housing is the ultimate durable good, and like all goods, eventually wears out. Your analysis does not take into account the tear-down rate for obsolete homes ( I've seen numbers ranging between 300K and 500K per year). Add this factor into your analysis and the picture for new single family construction looks a little bit brighter.

Oct 05 02:35 PM

[concrete guy:]

CI wrote: "The result is that now that we have too many single family homes, too many apartments and too many condominiums, the last thing we need to do is further this structural imbalance by building more homes. Each new home that is built deepens the challenge of those sitting on properties for either sale or rent".

The homes being built today are virtually all pre-solds (being built for a ready buyer). They are not speculative. The banks are not loaning for spec homes. In that sense they are not adding inventory to the market as they are sold the instant they are completed. Housing inventories are not fungible. Several areas of the country are enjoying very low inventory rates, and hence, rising construction activity.

Oct 05 02:41 PM

[Russ Wetherill:]

Good analysis, but I have to disagree with your conclusion. If anything, low ownership rates will plant the seeds of recovery. By reducing the highest fixed monthly payment, many households will be able to pay off other debts, build savings, and perhaps have discretionary money to spend.

The recent high ownership rates caused a disproportionate amount of household income to be spent in the construction industry, as well as flowing to the financial industry in the form of interest payments. All of this house spending was at the expense of other spending and saving.

I also think you may have a chicken and egg problem. Household formation results from a strong economy, it doesn't ordinarily cause it. When the means and the ends are too dependent on one another, then you have the ingredients for another bubble.

Oct 05 04:09 PM

[HardwoodFlo...:]

Well as Concrete guy knows homebuilding is exactly as he states: no new housing except for those with buyers at the ready. The problem is the existing home inventory (although the low end, $415K and below, inventory is tight) there is ample supply of upper-end homes. This is mainly do to the lack of credit available to people in upper income brackets. (banks do not want to lend what is not FHA/government backed). I agree with the author that the problem know is two fold, unemployment and all the college grads who cannot find jobs in this economy. We will continue to exasperate the problem.

Moreover, remodel, which is a huge part of homeownership is going to take a hit as homeownership declines (ironically, what is happening however is that those choosing not to move-up because they do not want to sell into what's a perceived "bad market" are staying and remodeling but there is also a boost to remodel in a healthy housing market).

I do challenged the authors take on the national home builders. I think they will see margin compression (for two reasons one they will be forced to build under $415K this means smaller homes (it costs the same for a big builder to build a 3K square foot home as it does a 5K square foot home) and the volume will be down as we work through existing inventories on the upper end of the market.

One stock I would be wary of is Lumber Liquidators. People are betting on it as a housing recovery play and this is foolish. It has had a good run but here is the conundrum in an improved housing market: one there will be a tightening of supply for them from vendors (they won't be able to call and say what do you have in overstock that you need to dump for cash so they will not enjoy the same huge margin's they currently do) and two people will not choose to DIY it but instead hire a contractor (who don't shop at Lumber Liquidators because of the quality of flooring).

The author is very much right that the housing market will be slow to recover- this is mostly due to economic issues (layoffs and the ones sighted in his column i.e. homeownership decline) and the lack of available credit. If you are a duel income family making $300k a year you cannot get a jumbo ($750K +) loan right now. That needs to be fixed in order to get housing moving again.

CG is right there is no low end inventory left. There are no new houses left. But there are a lot of existing home in the upper brackets.

There is one graph the author didn't included in the piece which he should have from Calculated Risk- that is the number of units per million people. The truth is that in past housing recessions the number of units per million people ranged from 8,000 to 12,000 we are below 2,000 right now. So the amount of housing on a per capita basis is really quite low.

A return to residential spending would crank GDP. These are durable goods, usually with higher ticket numbers, so spending as it relates to housing can be a massive contributor to GDP. The problem is that cannot happen without a healthy regional banking system- something we don't have at the moment.

Oct 05 04:26 PM

[John Bowman:]

A friend of mine who lives in Florida claims that vacant houses there are being used to grow marijuana. I understand that they heat the house to a high temperature after darkening all of the windows. It is supposedly an ideal environment for the drug.

Well, at least it's being used for a commodity which is in high demand. And with the high electrical usage and taxes still being paid, it is probably stimulating the local economy in more ways than one.

I'm not sure if SA ever had an article whether the price of weed is related to the price of gold, the dollar or some other commodity and how it affects the nation's GDP. It would be interesting.

NOTE: Please don't take this comment seriously.

Oct 05 04:48 PM

[HardwoodFlo...:]

Looking at the housing start graph from Calculated Risk it is fairly evident that the starts move down at the beginning of the recession then start to move back up toward the back end of the recession peaking shortly (1yr or so) after the recession has ended. At least this is what has typically happened. What is also clear is that this housing start recession is longer (housing starts started to crash in December of 2006) nearing now almost 4 years that any other downturn in housing starts and we have not seen the turn yet. It is moving sideways at starts around 5-600K which is incredibly low. In fact since the late 60s we have only been below 1 Million starts three times and even then not for a sustained period usually about a few months (we have been below 1 million starts for almost 2 years). This is truly amazing considering we have 30% greater population than we did in the early 80s housing recession.

You would think there would be an aweful lot of pent-up demand out there. But with people losing their jobs and fearfull of losing their jobs the security just isn't there to support the housing turn around.

Oct 05 04:52 PM

[concrete guy:]

Very funny post......but on a serious note, many of the rural vacant homes are being used to cook meth. I know of 5 in rural Illinois and Iowa that were demolished by the land owner due to this issue.


On Oct 05 04:48 PM John Bowman wrote:

> A friend of mine who lives in Florida claims that vacant houses there
> are being used to grow marijuana. I understand that they heat the
> house to a high temperature after darkening all of the windows. It
> is supposedly an ideal environment for the drug.
>
> Well, at least it's being used for a commodity which is in high demand.
> And with the high electrical usage and taxes still being paid, it
> is probably stimulating the local economy in more ways than one.
>
>
> I'm not sure if SA ever had an article whether the price of weed
> is related to the price of gold, the dollar or some other commodity
> and how it affects the nation's GDP. It would be interesting.
>
> NOTE: Please don't take this comment seriously.

Oct 05 05:03 PM

[Socialism c...:]

"It is historically what drives the economy out of recessions."

Really? I would think that jobs have to recover first, and then those holding them need to save a bit and restore their financial condition before being able and eligible to buy. Housing follows a lagging indicator. Doesn't mesh with your thoughts, IMO. Furthermore, as CautiousInvestor points out, this economic collapse was in large part predicated upon the foisting of social engineering (socialism) into housing! Those seeking to expand home ownership deliberately caused lending criteria to be watered down. You are trying to cite as an economic solution that which caused the problem!

The real solution is found by defining the real problem: excessive government, and the excessive taxation needed to pay for it, are crippling the budgets of the large *productive* class. Radically downsize government and cut taxes to the core, and America will thrive again. Funny how smaller government and lower taxes coincide with greater freedom and prosperity, isn't it?

Oct 05 06:20 PM

[a fat panda:]

The problem for housing where I live is pricing point. We have a moderate to above average inventory for homes under 250K. As you go higher in pricing, you see a inventory go from months into years.

It may be different elsewhere, but housing can't recover until we find a way for the economy to digest all of these high-end homes without welfare. It is senseless to build more inventory when you have falling prices at the upper-end. The 800K homes are going to fall on the 700K homes, which will in turn fall on the 6s and 5s and so forth.

Oct 05 07:08 PM

[joof:]

The long term demand for new housing is estimated at about 1.5-1.7 MM units a year based on household formation and obsolescence. That is both for sale and rental

Look at the Harvard Center for Housing website and their annual analysis.

For several years d uring the boom production was well above this number. At least 1-2 years supply was built ahead of fundamental demand.

Production has been below the long term level since late 2006- reversion to the mean. At some point there will be production back to or above the mean - or people will be underhoused.

Oct 05 08:51 PM

[TTurk:]

The author's analysis outlines numerous issues concerning why housing will not contribute to an economic recovery from the current recession. Unfortunately, the author is correct and the problem is worse than simply an oversupply of homes and rental units.

Homes can no longer be purchased with zero, 5% or 10% downpayments. Over 40% of homes purchased in the past 5 years have been unconventional. Why? Because families had no savings to use to purchase a home. Now, that 27% of household wealth has been destroyed in the current recession, even fewer families can afford homes. Those who can buy up, are unable to sell their homes for the needed equity.

The result of all of this is that the lack of demand will result in home prices declining further and probably farther than currently forecasted.

Oct 05 10:21 PM

[Moon Kil Woong:]

It is interesting to note that many people who bought their houses on no net down or under 10% and/or took out second mortgages to use their houses as piggy banks can not afford to buy a house even after they sell their existing one. Thus, the author is right in seeing that in fact, home ownership as a % of the population is declining and will be a drag not a boost to the economy as a whole.

As for inflation, it is more a monetary fiscal than an issue about home ownership. The Federal Reserve can cause inflation even without increasing employment or growth.

Oct 06 12:05 AM

[ryanclarke:]

You mentioned there are ballpark 125 million homeowners in the U.S. My back of the envelope calculation is about 25 million of those homeowners don't have the means with which to make their monthly payments even if they can refinance through FHA. Will Uncle Sam be cruel and remove these unemployed and underemployed from their house and place them in Hoovervilles? Perhaps they can share the basement with the crazy uncle or aunt who's lived in Grandma's house for the past ten years. Bernake has a better plan. Uncle Sam should just pretend and act like money no longer has the value it once did. Keep'em in the house and they can drive to that new job at the Taco Bell that just opened up ten miles across town ... and Taco Bell will have to pay them twenty dollars an hour just like at their old job so they can pay rent .... I mean paydown that thirty year mortgage ... soon to be fifty year mortgage .... soon to be one hundred year mortgage.

Oct 06 01:37 AM

[Mike from NYC:]

I still think housing is over-priced and beyond the means for more and more Americans as salaries and disposable income for the middle class is and has been declining for years. More Americans are unemployed now than since the Depression and job recovery is slim.

According to several articles I read, income for most Americans will decrease as competition for fewer and fewer jobs increases, squeezing salaries. In other words, Salary Deflation. This concerns many economists and few will own up to this issue.

Use all the graphs and historicals you want, but they won't tell you much as we are in a 'New Economy' where the old doesn't apply anymore. For 20+ years the American economy grew based on accumulating more and more debt, unlike in the past where the economy grew as a result of selling 'Made in the USA' goods around the world. Our trade deficits bear this out.

While 'home sales' make big news I would like to see 'sales vs. foreclosures' compared. I wouldn't be surprised if foreclosures outnumber sales, and from what I read, we ain't seen nothing yet in terms of foreclosures as the Alt A mortgages start to fail at greater rates.

I read somewhere that JPMorgan is sitting on 400,000+ mortgages that have defaulted but not foreclosed on yet. I guess this may be as a result of their WaMu purchase. God only knows how many defaulted mortgages are being sat on so as not to crash the entire residential real estate industry.

I hate being so pessimistic but the numbers and stories I read cause me to be. Whatever guarded optimism I had has been swept away, along with my job and my prospects for future employment.

Oct 06 09:28 AM

[Steve Owen:]

Good article, and I liked the use of the graphs. However, I don't really believe one point is technically correct:

"If a household does not own its house, it has to rent. If 64% were home owners, then it logically follows that 36% were renters...."

I'm not sure that really follows. They might be living under a bridge, moving in with Mom and Dad, or going back to Mexico. The difference may not be statistically large enough to influence the rest of the points about renters, I just don't know. But, the use of a possibly flawed method of determining the number of renters casts some doubt on it.

As for the idea expressed by one commenter that not buying a house would cause families to increase their savings rate and get out of debt... wouldn't that eventually lead to buying a house? Still, overall, there were some very good thoughts expressed in both the article and following comments. I have grave concern about the possibility of sustained recovery without a healthy housing market and a lower unemployment rate.

Oct 06 09:40 AM

[HardwoodFlo...:]

Socialism guy. Check out the Caluculated Risk website. They ran a recessionchart going back tot he 60s. They overlayed both housing starts and unemployment lines. Typically when housing begins to move up then employment follows some months after. The problem here is that housing is just moving "sideways" not up like it did in past recessions...

Oct 06 01:05 PM

[HardwoodFlo...:]

Steve Owen makes a good point Modigliani (Nobel prize) too would probably disagree with the statement that not owning and renting is a better idea because it creates disposable income- not sure what empirical evidence there is to support that idea. I could think of lost of hypotheticals when that might be the case but perhaps it's not based in reality.

Oct 06 01:09 PM

[Buckoux:]

I agree. The housing booms of the 1940's and '50's came from the need to house industrial workers, not the other way around. Indeed, the expansions of housing in the 80's and 90's were also attributed to increased economic activity in other sectors. When housing finally began to drive the economy in these last 10 years, snakelike, it began to consume it's own vital organs in the financial industry. As the son of a developer, I know that housing is a good business, but it's not in the drivers seat of the economy as is manufacturing.


On Oct 05 04:09 PM Russ Wetherill wrote:

> I also think you may have a chicken and egg problem. Household formation
> results from a strong economy, it doesn't ordinarily cause it.

Oct 06 01:09 PM

[HardwoodFlo...:]

Mike in NYC- you bring up a good point but foreclosures are around 3% (that's really high) of all mortgages. There are about 58 million mortages in the US. So we will see about 1.7 million foreclosures this year alone. That's alot. Sales of homes are running about 5 million.

There are a total of 128 million households in the US. Of those more than 50% don't have margages. Of the other 50%- 75% have been in their homes for 10 years or more.

I'm using dialetics here so please don't jump on my ass....

Oct 06 01:13 PM

[HardwoodFlo...:]

Buckoux well your not exactly right. Yes the baby boomers were a big lot but infact, demographically, we are in the middle of one of the biggest population expansions in US history. Sorry it's a fact.

I know people chime on about the aging baby boomers and what are we all going to do etc. However, the reality is that we are still putting alot of people on this earth and in this country (actually our age population demographic ratio says that we are younger than China- I wouldn't believe it if I hadn't just read that).

Since the housing crash in '91 our population has grown by 20%, 30% since the 82 bust and 40% since the 70s. We are going to be at 308 million by the end of 2010 and 450+(est) by 2050. The growth rate is something like 1% a year. Now houshold formations typically take a hit during recessions (depression as may be the case here) but typically they run around 1.2-1.5 million per year.

These are the facts- I know the Baby Boomers think differently but it's true. The hard part isn't for the US when it comes to aging population but for China, Japan, Greece, Italy, Spain, France, Germany. These countries have serious problems in 10 years.

Oct 06 01:26 PM

[HardwoodFlo...:]

Ryan your back of the envelop isn't right because over 50% of the people (homeowners) don't have mortgages.

Oct 06 01:33 PM

[HardwoodFlo...:]

TTurk- Unconventional means a lot of things. For example a JUMBO is considered unconventional. Yet can be a 30year or 12 year amort.

Oct 06 01:35 PM

[Bolton Peck:]

@socialismC.. That old saw. Blame 'socialism' again. Gee, I thought it was the massively DEREGULATED mortgage market which allowed lenders to basically turn into loan sharks, which got us into so much of this mess. Also, what about the gaps in regulation which allowed those insanely complex credit default swaps and mortgage backed securities to go crazy? I don't think all that deregulated capitalism did anyone any good, well I guess it did do some really rich folks some good. For the typical subprime loan recipient, here's what it did: Not only did they afford the house they bought, they also afforded to pay almost DOUBLE what the interest would have been, had they been sold a vanilla 30 year note at the prevailing rates! In a real socialist government situation, this isn't allowed to happen.

So, the only real lifeline being thrown to actual homeowners, the victims of onerous subprime mortgages whose interest rates can ARM up around 11 percent, is the HAMP plan-if you can get the bank to do it, and they're pretty serious about being right on time with the payments. I am intimately familiar with HAMP and its workings-it saved our house for us after the primary breadwinner couldn't find a job for a year.

What do the banksters who created this mess get, after making all those obscene profits off the backs of essentially the poor? A complete bailout from the government!

This sounds a lot to me like privatizing the profits and socializing the risk. The private loan sharks got all the profits, then when the ponzi scheme finally collapsed, the investors got a big government bailout. Sounds pretty socialist to me-except real socialism helps people who need it, those who don't already have private jets, yachts, etc. As opposed to the top five percent of the population who hold 90 percent of the nation's wealth-they got bailed out. A big socialist subsidy!

Unfortunately for me, even as a small business owner, I'm well towards the bottom of the remaining 95 percent of the population. I can tell you this from real world experience: It ain't tricklin' down, folks! I can't get a loan for my shop-because my clientele are mostly too poor to afford new bicycles as opposed to the used ones I sell. I don't live in the ghetto either-my area used to be fairly affluent. Lots of bikes that were really expensive six years ago, if you know what I mean.

Its not the taxes I have a problem with, really. It's the subprime mortgage interest, penalties, fees etc. that actually crippled us-and we bought a cheap, beat up old fixer-upper. Oh, and the thirty percent APR on the (thankfully very low amount of) credit debt doesn't help either.

In the last six years, my family has given more money to the banks than the Man will get in the next ten. Who is really the villain here?

Oct 06 02:05 PM

[HardwoodFlo...:]

Yes Bolton! The Problem right bow is a mixture of what you said. The banks are getting the best deal of their f*life. They are getting money at zero, writting FHA backed loans at 6%. With deals like that who would want to take a risk (ironically what bankers get paid interest to do) and actually loan money.

It's a joke. The whole thing is so messed up it's absurd. You are right we are being squeezed to death by regional banks. They are strangling small business. Mean while they are standing atop of a pile of money (tax payer and yours and mine) that they took back from our businesses that we need to operate.

The problem is we are such a fragmented group that we have no voice- but we all say the same things. I just got off the phone with a customer in a major market. His bank is absolutely running him out of business. He cannot buy truckloads of flooring and sell it becasue they have shrunk his credit line. When he asks for an increase they say your cash flows don't jsutify it. He says my cash flows don't jsutify it because I don't have anything to sell.
The question is why is this happening. It's happening because for 20 years regulators have been gettingthe fingure from banks- now they are in charge. Which means the credit managers are in charge. which means they are running the bank. Which means the relationship guys are useless. What is the solution to this problem: unfortunately it is what you are suggesting casued the problem- they have to give the banks some breathing room to get lending going again.

Oct 06 02:18 PM

[metaforge:]

I'm having a very hard time finding tenants for my rental property. It's a great house in a great location, never had trouble before. Seems like everyone is shacking up with mom & dad or bro & sis. Pretty soon we'll be living the Indian lifestyle with 3 generations and 10+ people under one roof!

Oct 06 03:49 PM

[Bolton Peck:]

I think they need to break up all those huge banks, re-introduce the post depression era regulations, and force them to put all that bailout money back into the economy. Right now, the regs are lax, and look what it's doing. I doubt less regulation is the key here-it sure hasn't been in the past!

One thing I think should be regulated much better-how come it's legal to raise my credit card APR, and this is a business card whose expenditures are bike parts, to 30 percent even when I wasn't late?

There are several very common sense regulations on the table, and of course Bankster funded Barney Frank is against most of them. Such as a bank having to offer the old school vanilla solution right next to the 'exotic' options. Think 30 year straight up mortgage versus subprime ARM ream job, which of course they love to sell. The banks bitterly oppose this, of course, because given the choice, what sane person would have gotten a loan that they knew would only cost them a fortune AGAIN in two years-when all they wanted was a plain old mortgage that could give them a chance at a good future? One not forever beholden to the banks?

Greed is bad, but unfortunately, endemic to the upper crust. It's always more more more, just like a cancer. There's working hard, building up and enjoying the finer things, and then there's just bald faced avarice and lust for power.

Government was the big balancing factor between societal benefit, empire building, greed, etc. but now it really isn't. Not like it should be.

Oct 06 03:50 PM

[Alphameister:]

Excellent article. I share your conclusions. Just because new homes today are pre-sold does not alter the picture regarding inventories. Without the newly constructed house, an existing home would be purchased and taken off the market. As for the comment by Steve Owen, somebody living under a bridge or moving in with mom and dad is not a household; in the latter situation, they are adding to the size of an existing household. The author's illustration of the effect of this phenomenon seems far too modest to me. I'd expect the size of the average household to rise by a lot more than a tenth of a person in the next few years. Also in need of consideration is the number of second homes being added to inventories.

I've been wondering to what extent retail sales have been boosted artificially by those who choose to discontinue payments on their mortgages and live rent-free until eviction (also a very lengthy process) and thus find themselves able to afford discretionary expenditures that would otherwise be out of reach. Is anyone familiar with an attempt to quantify such phenomenon?

Oct 06 04:02 PM

[talld:]

The entire thing has been a scam from the so-called insurance offered by AIG to the marketing of mortgage backed securities to "no-doc loans" to "bailouts."

It is the biggest fraud pulled on the country since they convinced the population there was such a thing as trickle down theory, only then it only cost us a few billion.

Oct 06 09:06 PM

[HomeEconomics:]

How is 67% homeownership considered low when it is still above the trend for the past three decades?

I swear people are trying to turn 2005 into the "new normal" instead of admitting there was nothing normal about that environment.

Oct 06 11:54 PM