BiggerPockets

My day started with getting ready for a trip tomorrow to Cancun. Fun, excitement and grand kids.... Then, I made the mistake of reading news reports and picking up the USA Today.
Front Page headline article "Cities see rise in rental homes". Shouldn't have read it. Opening paragraph states that over 500 large and mid size cities have seen homeownership drop and increase in renters. Good or bad?
The 4 million foreclosed homes in last 5 years will cause long lasting changes, reduction in neighborhood stability, and eliminate the # 1 method folks have created wealth over the last 50 years-their home equity.

Irvine increased from 40-50% renters in last 10 years
25 cities now have more renters than owners
Since 206,rental households have grown 692,000 a year
Since 2006, owner-homes have dropped 201,000 a year.

Then I read some more articles that talk about a DOUBLE DIGIT drop (11.6%) in RE values currently.

Then I read some more articles that seem to say the dream of home ownership might not be so good any more. Concern about more drops in values. Continued foreclosures. Potential cuts to home owner subsidies. Possible elimination of interest deduction on taxes.

It seems to me, when I start to think deeply about this, maybe there is a move afoot to turn U.S into renters. Who does this benefit? Why would someone not want to be positive about real estate ownership. Isn't this where the majority of estates have been created? What if we can't see benefit in owning real estate? What does that do to values? Why would lenders want to loan on a bad future?

There is definitely a positive in renting currently. In many cities you can rent the same home than what you would pay in mortgage pmts. If you didn't believe in value increases, or were constantly being told that is no longer the best route, why would you do it? Even with the low interest rates, govt assistance programs, mortgage re-dos etc, the prognosis is not good. We've been told we're on the mend, yet the facts tell a different story.

Why would govt want this? Could it be beneficial to them? Take away that dream and create more dependence on Big Brother? Higher inflation wouldn't matter as much or would it? Would this help create a more "level playing field for all" if the # 1 wealth creator was taken away? Would this be helpful? Would this lead to more "socialistic" approach and need of Big Brother involvement?
I told you this messed up my day!! I don't have the answers. The increased demand for renters is good for my rentals, but if the buying public doesn't believe owning real estate is a good thing, aren't we screwed? Feel free to disagree or tell me I'm nuts. In this instance, I hope I am. Rich

Rich as you and Bryan know real estate is not really a point in time investment. Meaning there are so many factors going on at any one time it is tough to pick a bottom or a turn in the market until it is several quarters behind us.
So all of this negative press is just part of the process and we will have more pain. Just wait until a big bank or fannie or freddie goes back to the government and says whoops we need another $5B-10B. We have lots of pain a head but when we come out of this in 5-10 years the people that bought at distressed prices will be the ones with all the money.
Time heals all wounds and memories fade with time and so much of the capitalist society is based on Property ownership it will become a good investment again.
I can;t wait until Newsweek or Time magazine has a cover story that says Home Ownership is OVER. They have proven to be great bottom pickers in the past.

Allot has changed in this country the last 20 years. We live in economically volatile times. In "the old" days people worked for a company their whole life. We live in a different world now. People are much more likely to work for many different companies during their lifetime and because of this to move quite frequently. They take jobs in different cities and must be willing to re-locate on short notice. This is one big factor I'd say. There are many benefits to renting over owning. James Altucher wrote an interesting article about this recently. Although I or you may not agree with him about some or maybe everything he writes he does raise some interesting points.

http://www.jamesaltucher.com/2011/03/why-i-am-never-going-to-own-a-home-again/

But what's the impact on people looking to own houses for investment purposes? Maybe it's not so hot for people looking for appreciation. But more renters mean higher rents right? I always thought that rents and the price of homes were inversely correlated. Rents are supposed to move up as the price of houses go down.

I agree with Michael. This too shall pass. Memories are short and the American Dream will be back. Meanwhile LL's will make alot of $$$.

Where have you seen that fewer foreigners are investing in real estate here Rich? I have noticed just the opposite anecdotally over the last few years. Australians and Canadians are really looking to put money to work here.

I agree on the Canadians, due to the recently strengthened canadian dollar. There was a time when a development in FL was 60% European ownership. No longer. We've also lost the Japanese due to their "lost decade". I've been lucky enough to travel extensively and chat with many guides in other countries as well as with residents and investors in those countries. There is serious concern in our stability and many are expecting China to take the lead. No real knowledge on the Aussies attitudes.
I just don't see the wealth and wealthy to play the real estate game as it once was. Rich

Artificial or real....It is still a negative wealth effect and that is why people aren't spending money. We're having a long, muddle-through recovery....but it is still a recovery.

<Cue the doom and gloomers>

Forgive my engineering spelling in my last response. I corrected it above.

The last chart on this site:

Calculated Risk Unemployment Chart

shows the percent job losses relative to peak employment month. The red line at the bottom shows how anemic job growth has been this cycle. To say that the recovery is slow by historical standards is a ridiculous understatement. Until consumer confidence in their job returns there will be little boost to the housing market.

ophelia, i likd most of your post,but i wanted to interject a thought here real quick...you briefly mentioned the contrarian view at the end..well, right now, just about everyone and their mother is saying that "it's a great time to buy", and "it will come back"..what do you think of that?? not bashing your thoughts-again, i liked your post...but when i go out to eat, and the server or bartender asks what i do, and i tell them, and they suddenly start spitballing out what they've all heard on the news...it does worry me a bit...i guess wha i'm saying, is that if everyone believes this country will recover, and they also believe it's a great time to buy, then what would the contrarian take on that be?? and for the record, i'm one of the majority that says/hopes it'll come back as well--just think it'll take a long, long time :)

I personally think many investors are sitting on the sidelines and waiting for unemployment numbers to improve,US soveriegn debt crisis to be resolved, EU debt issues to be solved, US dollar to increase and overall global economic confidence to resume. I also think foreign investors are worried about the US dollar's future. How many Europeans are buying US real estate right now?

We talk so much about real estate values and indicators but lets not forget about the falling US dollar. Will it continue? Will it remain as the reserve currency? What effect will this have on imports/exports? What are the implications to investors should the US dollar continue to fall?

The whole economy is scaring the hell out of me right now. I want to jump in the RE market but than you get another crappy result from an indicator and it scares me away. Everything is in cycles, and we are just riding through one of these cycles. I have to keep reminding myself of this. Martin Armstrong's economic confidence model is an interesting theory, check it out.

Your nervous nelly
Peter