O.K. – I know I’ve said before that I don’t care when real estate values are going to stop falling and begin to rise again. And I mean it – I don’t! Nevertheless, for those of you out there who are just itching for a better answer, I do have one.
According to an story by Motoko Rich entitled Rents Keep Rising Even as Housing Prices Fall, which first appeared in New York Times on February 25, 2012, home ownership rate in America during the fourth quarter of 2011 was down to 66% from its’ peak of 69.4% in 2004. The question is: how much lower will the home ownership rate get? If we can pin-point this number, then we will have found the bottom of the market. It seems logical that we need to get back to a home ownership rate which is historically sustainable in order for demand to return to the market, which will drive the values back up.
The historical data relative to home ownership as per the U.S. Census Bureau suggests that between the 1950’s and the 1990’s (pre-bubble), the home ownership rate in America fluctuated between 62% to 65%. So, my answer to the question on everyone’s minds is that prices will not begin to increase until we get back to historical norms relative to home ownership rates in this country.
Furthermore, I am concerned that the new norm is actually lower than the historical average. I feel that there may have been a permanent, or at least semi-permanent change in people’s perception of home ownership relative to the American Dream. Many have been so disturbed by the crises that even though they could and arguably should be owners they choose not to be. Instead they rent, which is why the rents are on the rise, as the article suggests. As I’ve said many times before, now is a great time to get into real estate investing – property values are down, interest rates are ridiculously low, and the rents are on the rise. As to the home values, I seriously doubt that we will see any fundamental increases for two more years, and possibly as many as four or five years.
© Copyright 2012 Ben Leybovich and Just Ask Ben Why. All Rights Reserved.