by Bill McBride on 5/12/2011 03:54:00 PM
Thursday, May 12, 2011
Mostly I focus on the housing numbers: inventory of homes for sale, homes sold, house prices, foreclosures, mortgage delinquencies, price-to-rent and price-to-income ratios and more.
Recently I've noticed a shift in sentiment - what I've been calling "hate for housing". I saw this change in sentiment during previous housing busts too, and although it doesn't mean prices have bottomed, it suggests we are getting close (the "hate" can last for a few years).
Here are two earlier posts on this shift in sentiment: Housing: Feeling the Hate and More "Hate" for Housing
And here are a couple more articles:
• From Bloomberg: Apartment Rents and Occupancies Are Poised to Rise in U.S., Economists Say
The decrease in [house] prices has turned homeownership from a source of financial security to a burden for many people, said speakers at [a conference in Vancouver].And from David Leonhardt at the NY Times Economix: Building Wealth Through Renting
“Now it’s the source of risk,” said Karl Case, professor emeritus of economics at Wellesley College and co-creator of the Standard & Poor’s/Case-Shiller home-price indexes.
You have probably heard a version of the idea that renting a house is tantamount to flushing money down the toilet, while buying a home is building equity for your future. Well, it’s wrong, at least much of the time.
You don’t have to listen only to me on this point. Here is Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City, in a paper published last year:
Conventional wisdom has long suggested that homeownership is an effective way to build household wealth. Consistent with this belief, homeownership is often considered to be a key part of the American Dream ...[Emphasis added.]
[Yet the] analysis in this article shows that while homeownership often builds more household wealth than renting and investing the saved cash flow, it also often does not. More specifically, for most ten-year occupancies beginning during the 1970s and 1990s, homeownership unambiguously built more wealth. In contrast, for most occupancies beginning during the 1980s, renting and investing unambiguously built more wealth. Renting and investing is also likely to build more wealth than homeownership for many of the occupancies that started in 2000 through 2009. These results suggest that either homeownership or renting and investing can be reasonable strategies for building household wealth.
In other words, the conventional wisdom that homeownership is usually the better strategy is probably too strong. For many households in many years, renting and investing the saved cash flow has built more wealth than homeownership ...