After scouring the newly released Census data many things stood out but one of them continues to reflect a growing disconnect in housing. The US is adding many more renter households. This of course is occurring in spite of record rising home prices. For regular buyers, the mortgage market is still checking carefully for income and other requirements yet “cash buyers” continue to be the dominant force in 2013. In expensive areas like California, more people are using jumbo loans. Ironically, the market has now adjusted once again to the Fed’s obtuse language on tapering. While this language might come off difficult to decipher, the stats are very clear. Over the last six years we have added millions of households as renters. What are the longer term implications of this?

Renters versus owners

I went ahead and pulled data from a few key years and the latest 2012 annual Census data:

The biggest change of course has come from the growth of renter households. 2.1 million more families rent today than they did in 2007. Even more telling, from 2011 to 2012 we added 1.1 million renting households. I think this is largely a reflection of the massive amount of investor buying and Wall Street suddenly having a liking for rental property. Is this a positive trend?

For one, it is clear that rents overall are rising:

US rents are rising at about 3 percent annually, about twice the rate of the overall CPI. The problem with this is that the Census figures also show that household incomes are falling. So more money is now being shelled out to rents. Or if you are buying, more is going to your PITI because home prices are now rising at an incredibly fast pace thanks to investors flooding the market. One thing is certain and that is more money is being plowed into real estate and that isn’t necessarily a good thing. Discretionary money is being earmarked for housing.

This is occurring under the context of falling incomes:

Adjusting for inflation, US households are making what they once did in 1989. In fact, the US homeownership rate is heading back in this direction as well:



Historically, US households have stored most of their wealth in housing. So the overall drop in homeownership and the big increase in renting means more Americans are being left out of the most typical way of building wealth. Of course, before the banking system turned housing into one giant casino, most households had very simple guidepost of entry. You bought when you were ready. You bought in an area you planned on staying in. You didn’t have to worry about buying at the top or bottom of rollercoaster swings in real estate that occur courtesy of the whims of the Fed. Today, you have some markets were over half of purchases are investors and in some areas home prices are rising by 30 percent annually even though incomes are falling!

This path is unsustainable and we even saw what happens when hints of removing the taper hit the market. The market understands that the Fed is the major player here. For most Americans all the banking bailouts have resulted in massive residential grabs by banks who are outbidding regular families.

People have a keen sense as to what is happening. This has been and is a bailout of the wealthy:

“(SoberLook) Mortgage rates declined – a full 14 basis points. So that’s the impact on the “real economy” of delaying “taper”? To make matters worse the decline in jumbo mortgage rates was higher than in conforming mortgages. Between the pop in investment portfolios and the drop in jumbo rates, those who are well off to begin with are more likely to benefit from this policy decision. Was that the intent?”

Jumbo rates only impact a tiny portion of the market. In the Bay Area, jumbo loans make up 47.8 of all housing purchases and 27.2 percent of the market in California. Throw in cash buyers and over half the market is being driven by “cash buying” and those taking on jumbo mortgages. You think this is helping the ownership rate in high cost areas?

Not at all. And jumbo mortgages are a miniscule part of the market across the US. Welcome to renter nation.

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