Tuesday, April 19, 2011

Housing: Feeling the Hate

by Bill McBride on 4/19/2011 12:17:00 PM

I've seen previous housing busts in California, and although they were less severe than the current bust, there always seemed to be a stage when people hated housing. So I've been looking for the "hate", and maybe we found some ...

First, from Equity LifeStyle Properties, Inc. (ELS) conference call (an accidental landlord, ht Brian):

Analyst: Along the lines of the rental home program a couple more questions. How big do you expect that program to ultimately get?

ELS: I think the answer to that question is really another question, how long do we think the current environment and distinct single-family home situation is going to last and what are the issues that are going to cause that thing to kind of loosen up and return to some maybe a different normal but at least some sense of normalcy. I have not been a fan of the rental program because it changes the dynamic of the business that we know and love where we owned the land and somebody owns a structure on it. I think our desire to get some other capital involved in a rental situation is indicative of that desire to focus on really being a landowner as opposed to being a homeowner, but that said, I would also have to say that it has been much better than what I would have anticipated in terms of the operational drag, the ability to rent the homes, the wear and tear on the homes, the value of the homes over time much better than what I would have anticipated . And I think in some respects there could be a place for a component of rental over the long term. It gets to a customer that is very focused on maintaining or preserving capital but may not have access to capital but otherwise it is a good customer in our communities.

Analyst: Back to the home rental program has the basic customer changed in the business, that is, I guess the conventional or the traditional buyer was someone who was selling their home in order to buy a retirement home and didn't need financing and so what is the dynamic? Is it someone that is just hanging onto their pre-retirement home and [wants] financing? I guess it is not clear to me why third-party financing is very critical to the business.

ELS: It is a use of capital issue. But with respect to the first part of your question , we run an application process that screens potential customers, and I would say the one thing that you will notice but I wouldn't call it a significant change but noticeable is that there are more customers with some type of history in their credit profile, meaning a foreclosure or short sale or something with respect to their previous housing arrangement. But as it relates to FICO and non-single-family home related credit issues, we are not seeing any change with respect to that. We are seeing a psychological change just in terms of people wanting to preserve their capital and not want to put much of it into a single-family home situation. They would rather have it in the bank or the stock market. I'm not sure where else but certainly not excited about putting large amounts of capital into a housing situation. That is what we are seeing at the level of the property
And from Bloomberg: Americans Shun Cheapest Homes in 40 Years as Ownership Fades
“I know people who have watched their home values get cut in half, and I know people who are losing their homes,” said [Victoria Pauli], 31, who works as a property manager for a real estate company. “It’s part of the American dream to want to own your own home, and I used to feel that way, but now I tell myself: Be careful what you wish for.”
...
At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”
I disagree that housing is "cheap", but I'm starting to feel the hate.