Robert Loftus'  Instablog

American workers have been the subject of efficiency studies, job-losses in the name of "economies of scale" and out-sourcing for many years.  Home ownership has not benefited from these same kinds of advances in efficiency and viability.  American culture has put the ideal of home ownership on a pedestal, as a means of building stable communities with a reliable tax base for the support of municipal functions.  Given the state of the modern economy, and demographic trends which apply to younger people today, home ownership has become an untenable position, and an irrational choice for those who are expected to switch careers and follow the jobs as necessity demands.  The above conditions have been brought into stark relief by the recent sub-prime mortgage bust.  The traditional model of individuals and families purchasing homes as an investment has become out-dated and irrelevant.  The only hope for a significant revival in RE markets will be the formation of large scale holding companies that are able to make use of significant economies of scale in negotiating purchase contracts, performing property maintenance and negotiation of property tax rates.  Until we start to see significant growth in those types of property holding firms, and significant increases in the amount of rental property available for a highly mobile working population, RE indexes are likely to indicate a steady and long-term downward trend in RE prices.  Without some degree of innovation in current models of property ownership, this author fully expects to see the 20 City Case-Schiller composite index well below the 100 mark before too much longer.  

This change will be violently opposed by many in the Real Estate and home improvement industries, as it means their cash cows - individual homeowners - will be replaced by professional property managers who are going to be far more savvy in negotiating commission rates and materials costs.  Those industries will have to adapt to changes in home ownership models, or see a continuous down-trend in sales that will likely far exceed the losses they would face in a world of large scale RE Holding firms.  Municipalities will also have to adapt.  Property tax rates in many communities - especially in the Northeast have reached the point of the ridiculous.  In some areas of New York state local taxes on a $250,000 home can exceed $1000 per month.  Areas that are suffering from high rates of property foreclosures will have to be prepared to offer PILOT programs for RE developers who are able to soak up large portions of foreclosure inventory and turn those properties over to create reasonably priced rental property.  

The outcome described above is the only realistic means for RE markets in this country to ever stabilize.  Sitting around waiting for an increase in Mortgage applications is - at this point - about as productive as watching pigs and waiting for them to grow wings. 



Disclosure: No Positions