Why Homeownership Decline Is Only Temporary

Why Homeownership Decline Is Only Temporary

There’s a lot of hoopla about the pending death of homeownership in America; but is that just a lot of hype?  According to Morgan Stanley analyst Oliver Chang, the housing industry can expect to see a drop in homeownership to 60 percent from its peak of 69 percent.  But there are still plenty of Buyers searching for Homes.

Chang, with Morgan Stanley, said there are roughly 7.5 million households either in foreclosure or delinquent on the mortgage. With the majority of these borrowers forced to pay rent over the next five years as their credit heals, this would equal $72.7 billion in incremental rent payments instead of mortgage payments.

The government is moving ahead to take advantage of the increase in demand. It’s currently developing strategies to rent more of the thousands of government-owned foreclosure properties.

The big problem here is that while it may be a good move to temporarily rent while improving credit and finances, the shift of 7 million households into the
rental market could send rental prices skyrocketing. Once rental prices exceed the cost of owning a home, renters will once again flock back to home ownership, even if loan terms aren’t as favorable as they are today.  That’s not to mention the special relationship that Americans have with homeownership. Unlike many western European countries, homeownership is considered a rite of passage by most Americans, including young Americans. So it’s not likely we will see a permanent shift in attitudes towards homeownership anytime soon.

For REO investors watching the current developments, considering multifamily structures could be a smart move.  According to Chang, rental properties could experience a spike in value, even if temporarily while Americans forced out of their homes because of foreclosure regroup in apartments or rented single-family houses.