Got Housing Recovery?
The homeownership rate is down.
New and existing home sales remain far below their 2005 peaks.
Housing starts for single family homes are flat.
What went wrong?
For the past few years the media has trumpted a housing “recovery”. In the “False Housing Recovery of 2013” (and again in 2015), we noted that the recovery in housing was in price alone.
New home sales and existing home sales remain far below 2005 levels and are indeed at multi-decade lows.
New Home Sales 1963-2015
New home sales are at levels of the 1960’s and ’70’s when the population of the United States was far lower.
New one family houses sold remain mired at multi-decade lows.
Higher home prices may have lifted underwater homeowners into positive territory and made them feel richer and more confident about their economic circumstances, but there is a dark side to rising home prices:
Rising home prices make homes less affordable.
The Federal Reserve’s policy of artificially driving down interest rates to boost housing prices has had the unintended (but predictable) consequence of shutting out a good portion of millennials from homeownership. Through a zero interest rate policy (ZIRP) and a six year quantitative easing (QE) program that involved printing $4.3 trillion out of thin air in order to purchase billions of dollars of mortgage backed securities and U.S. Treasury bonds, interest rates were driven down and home prices driven higher.
The misguided goal of a policy designed to get home prices back to the bubble levels of 2005 and 2006 with ZIRP and QE has backfired by increasing home prices and lowering home sales.
The Fed’s goal of higher home prices has been achieved in many areas around the country. Indeed in cities like San Francisco and New York City, home prices have exceeded their 2005-2006 peaks.
Generation Y = Gen Rent
Household formation among millennials remains low. Many real estate cheerleaders projected a day in the not too distant future when millennials in their million hordes would emerge from their parents basements, form households and start buying homes.
It hasn’t happened.
Instead many are emerging from their parents basements, forming house holds and… renting.
As a result of millennials not buying homes at the same rate as baby boomers, the homeownership rate has declined.
Homeownership Rate 2001-2015
Despite a $4.3 trillion quantitative easing program and zero interest policy, the homeownership rate has plummeted.
New Housing Starts 2001-2015
The June 2015 U.S. housing start data showed a 9.8% increase.
Housing starts have edged up since the end of the great recession.
New Single Family Housing Starts 2001-2015
New single family home starts, however, have not participated in the upswing.
Housing starts for single family homes have stagnated.
New Rental Unit Housing Starts 2001-2015
Nearly all of the growth in new home starts has come in housing with five units or more, reflecting the surging demand for rental housing.
Rental housing starts have rebounded nicely since the end of the Great Recession.
Generation Z to the Housing Recovery Rescue?
Perhaps the next generation of home buyers will have better luck than millennials.
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Further Reading:
The False Housing Recovery of 2013
The False Housing Recovery of 2014
The Dark Side of Rising Home Prices
The Dark Side of Artificially Low Interest Rates
Millennials: Not Part of the Club
A Warning for San Francisco and Silicon Valley
Waiting for Household Formation
You Can’t Get There From Here: Straining to Regain Real Estate’s Promised Land
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