Building For A Nation Of Renters: Between 2005 And 2015 Virtually All Household Growth Was Driven By Renter Households.

Dr Housing Bubble

What a difference a decade can make.  Over the last two decades the number of U.S. households has grown by 25 percent.  But the growth has come in two distinctive waves.  Between 1995 and 2005 nearly all of this growth came in the form of new homeowners.  However, the subsequent decade saw something very different.  Most of household growth between 2005 and 2015 has come in the form of renter households.  It should come as no surprise that new home buying still remains weak.  With this new trend unfolding, it shouldn’t come as a shock that multi-unit permits are surging as builders place their bets on rental Armageddon.  While a few people can’t wait to dive into mega debt for a crap shack, others are simply renting either out of necessity or by choice.  In fact, renting over the last decade has been the choice many have made (out of necessity or free will) contrary to the crap shack enthusiasts trying to talk up their poorly built piece of junk as some kind of diamond in the rough.  Builders with deep pockets are betting on a continuation of the rental trend.  It should also be no surprise that this decade saw a major surge of the “single family home” as rental unit.

Two decades with two different stories

We have witnessed continued household growth in the U.S.  Household formation has increased by 25 percent over the last 20 years.  However, each half of the last 20 years has seen growth come from two very distinct categories.

The homeownership boom followed by the renter boom:


The chart above is as clear as day.  You have the last hurrah leading to peak homeownership followed by a massive shift to renting as millions upon millions of Americans lost their homes to foreclosure.  You need to remember what this has done to consumer psychology.  Never in our lifetime have we witnessed a countrywide housing bubble.  Housing before this recent crash never suffered one year of negative price growth.  Not one.  So this put a major dent into the untouchable perception of housing as a sure bet.  It also didn’t help that over 7 million Americans actually lost their home to foreclosure.  We now have a nice group of revisionists talking about these people “strategically walking away” but in reality, this was a small subset.  The majority lost their home because when the economy contracted, cut wages and lost jobs couldn’t cover the mortgage payment.  Research has shown that people will prioritize debt payments in crisis and housing gets pushed up to the top of importance.  So losing a home is a big deal and certainly most people lost it for this obvious reason.  But you have to live somewhere.  Where did these people go?


A large part of the single family home inventory got sucked up in the investor orgy to convert them into rentals.  This took an already low supply of homes and made it lower.  And builders simply did not build new homes in large quantities because new home sales continue to be pathetic:

new home sales

Why not build new homes if supply is so low?  The answer is clear and that is new potential households have weaker wages and new homes cost more.  Why would builders construct an expensive product when the demand based on household income is for rentals?  It is also the case that younger households watching mom and dad stressing their minds our to make the mortgage payment has left an indelible memory on their mind.  Homeownership isn’t all that it is cracked up to be.  Millennials certainly don’t have the taste for home buying like the Taco Tuesday baby boomer generation.

Which leads us to the bet home builders are making.  Permits are surging for multi-unit housing (aka most likely rental housing):


You notice how the market didn’t react to the Fed?  The Fed’s action merely speaks volumes in that they still don’t trust this “recovery” and household formation is telling us an even clearer picture.  For all those that worship the Fed as their new religion your preacher just said “we can’t raise rates because the economy is still weak.”  For the last year or so home prices rising has come at the hands of speculation and stock market run-off.  The stock market had a tiny hiccup and we are already seeing the impact on housing.  People simply can’t afford to buy even with the Fed holding rates near zero.


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