The Economist begins an article on the American housing market with this:
A HEALTH check of America’s housing market is bound to be sobering.
“Sobering,” hell. This is scary:
The amount of equity in American homes has plummeted from $14.9 trillion in the first quarter of 2006 to just $6.3 trillion at the end of 2010. Low-income households have borne the brunt of the pain: prices at the lower end of the country’s metropolitan markets have fallen much more steeply than those for plusher properties.
Only two “crumbs of comfort:”
Rental vacancies dropped last year, and nominal rents began to increase in the second half of 2010. Rising rents may not sound like somethin to celebrate but it should help propel a recovery in the construction of multi-family rental apartments, and will also eventually persuade more tenants to think about taking advantage of lower house prices.
…the ageing of the baby-boomer generation will mean an increase in sales of homes by older people looking to downsize into smaller residences. That, and the limitations on mortgage financing, indicates that a revival in housing construction will focus on smaller houses. Fewer McMansions, in other words, and more McMaisonettes.
When energy price increase people are all up in arm…
when food price increase people do revolution…
and when housing price is decreasing, pundit call it ‘scary”. Why?
back to earth please.
PS: “Low-income households have borne the brunt of the pain” is not that true since in most of US where strategic default exist and anyway those people has accessed ownership with 0 down most of the time (NINJA mortgage…) , and pay less than rent: invoking the good of the poor to justify real estate speculation is the consequence of a very malicious thinking…
you just put into words the feelings I had with this article but couldn’t quite articulate. I appreciate that.
Voony,
There’s one huge difference between energy/food prices and housing prices. With 65% home ownership in the US (and 70%+ in Canada), a lot of people’s personal wealth is tied up in housing. In fact, for the vast majority of people, housing is by far their biggest investment.
At the same time, very few people are profiting from investments in food/energy. So, a majority of the US population is being hit from two sides: price inflation in food/energy (too major components of their consumption, especially for lower income families), and reductions in the value of their main investment. That is very painful, and a major drag on any economic recovery (in the traditional sense).
Believe me, I think the general government policy of supporting/subsidising/encouraging home ownership since the 1940s has been a big mistake (through the various methods used in many developed countries, from the US and Canada to France, the UK and Spain). Governments are directly responsible for having encouraged this insane concentration of people’s wealth in their homes, and creating the idiotic idea of turning a home into an investment. Many developed countries are now paying for that mistake.
Increasing energy prices over the coming decade will continue to have a negative impact on house prices, especially lower-income homes in far-flung suburbs. North America is structurally in a real mess with their energy-intensive suburban sprawl.
And it is absolutely true that low-income households have seen much larger reductions in the value of their homes. Ninja loans and non-recourse mortgages may “help”, but those people who walk away will have serious issues rebuilding credit scores (or will only have access to usurious high-interest rate loans and credit cards).