[seahorse3]

Many years ago, I said this time period would mark the end of private housing for Americans. Just as the Great Depression marked the end of the individual farmer, this recession which was fundamentally a housing bust would mark the end of private home ownership in America. I said this in the housing thread several times as far back as 2005 and 2006, so too lazy to look it up and link it here. The basis of that is the end of easy credit is over, jobs are not as well paying (service economy) and hard to find with 9% unemployment. I even suggested that the Federal Government would become the largest homeowner taking back all these foreclosed homes backed by Freddie and Fannie.

Now, here's an article that shows this forecast coming true: The Hill One of the suggestions now being touted by Congress is for the Federal Government to rent out all these homes.

I'm not saying this is a good or bad thing. I'm pointing out a trend and make your plans accordingly. After WWII, one of the biggest drivers of the American economy was building houses, the construction boom. The idea that all vets returning deserved a home fueled a long housing boom that is coming to an end. What this means long term I don't know, but things are fundamentally changing. We in the US will probably be more like England, where properties are rented long term and never owned. It is not uncommon in some places to have 100 yr leases.

[Pops]

You really were the Monster Shouter of the RE Bubble SH, I hope at least some people here heeded your warnings. Thank you!

Personally, I'd live in a pink 8'-wide 1958 trailer in the middle of Nevada before I'd ever rent again.

But, home ownership is waaay over rated financially, if you don't believe me read this.

The only exception is for the person who can buy a house a little cheaper than the market, put in a little work doing some repairs and dolling it up then selling it for a profit. That's what we were able to do. We owned or built 5 hoses over 20 years and though the kids might not have liked the moving so much, it allowed us to live better and wind up with more equity than we'd have had otherwise.

I've read that if realtors fees (a waste BTW) and the once again required 20% downpayment are considered, 50% of homeowners in the US are now under water! The only way to clear the system is to force the banks who hold mortgages to value them on their books at current value, let those banks who made too many bad loans go tits up and auction off their assets to the highest bidder. Voila, instant reset!

Of course that won't happen, the zombie hoards will turn out to be banks and we'll feed their executives from stockholder equity until, just like Japan, the 30 year max life expectancy of those shoddy tract houses turns them to mouldering ruins.

Or, as you say SH, the fedgov will bail out the shareholders and execs by socializing their mistakes.

[Heineken]

I think that some of what you're saying will happen, Seahorse, but I also think there will still be widespread private home ownership in the US. What will change is the size and characteristics of houses. They'll be much smaller, much simpler, and much less expensive. Trends that are already well under way.

[SeaGypsy]

Huh! Have a look at housing prices in London. Almost all leased on 100 year renewables.

[Shaved Monkey]

I had an old guy living down the road from me in a nice inner city suburb in Melbourne 20 odd years ago
He got his house during the Great Depression.
He was renting and the owner was told by the bank to get rid of debt.
The house was signed over to him for the cost of rent.
Bank was happy just to have money coming in, owner was happy (got rid of debt)
,he was happy, he got a cheap house for the cost of rent and no deposit.
The house would be worth about a $1million today.

[Cog]

If you always under-buy what you can theoretically afford, you won't have a personal housing crisis.

[JohnRM]

The problem, right now, is that homes are still, in many cases, way overpriced. Even if the income of the average American begins to fall, the homes are already there. They market will simply correct for what people can afford, meaning homes will get cheaper. The kind of hit the economy would have to sustain to make the end of private housing possible is just...well...staggering to imagine. I don't even think peak oil is big enough.

[seahorse3]

John I agree that housing prices are still overpriced in the US. If the fed reserve would allow a natural deflation they might become affordable again

[JohnRM]

Not necessarily. Deflation would place heavy pressure on many Americans struggling with debt. No one would buy with prices falling, because they'd be expecting a better deal, next week, and then you'd have even more homes going onto the market as the debt burden overwhelms those just barely keeping their head above water. I just see it as something that could spiral out of control very quickly.

[Pops]

Prices nominally are still higher than the long term trend but that isn't the biggest problem, I doubt unemployment is the biggest problem either.

The biggest problem is the credit market has shrunk. Five years ago you could buy a house with nothing down, no income verification - no job maybe, because no one expected to be stuck holding your paper. Turns out the music stopped and now we're back to requiring near perfect credit, 20% down and 25/30 income/debt ratio terms - like when I bought my first house.

The result being, a large number of houses were built for people who no longer qualify so the market is oversupplied even if other factors were "normal".

Houses aren't bananas, if you purchase too many bananas for resale you just toss the excess in the dumpster and move on. Those excess houses are still on someone's books somewhere as non-performing loans. Nothing will happen in the credit market until those bad bananas are eliminated.

I can only see 3 way for that to happen,

1. We socialize the debt.
2. We go the Zombie Bank route like Japan and keep bailing the banks and wait until the houses moulder and the paper expires - or inflates away.
3. We change the rules to make the banks own up to their mistake and take the loss.

[Heineken]

That's a great summary, Pops.

As usual in this country (and in our sadly misled imitators' lands), we overdid it with the credit frenzy. Practically free money! Yours for the taking! Dig in and cut out a piece of the Dream! Two years later, barf it up in exchange for a bigger piece! Who knew where the money was coming from. Who cared. Who even cared if the money was real. It seemed to work like real money.

I'd guess the housing situation will very slowly normalize. That is the current trend. Yes, prices are still falling in most areas, but less precipitously. Ultimately, private housing will be supported by the fact that a roof is a necessity of life and that many people do prefer their own place to a landlord and people blasting cucaracha music through the wall.

But the housing market will never be the same. Houses will be more modest, credit will be tighter, speculation will be absent, and the rental market will remain stronger, as Seahorse says.

The American Dream has been kicked in the face, with consequences that will resonate for decades.

[vision-master]

Did any Russians lose their homes when the Soviet Union collapsed?

[Serial_Worrier]

there's actually another simpler solution to the housing crisis; more people! Fill em with babies and immigrants.

Better yet - send America's surplus population to Burma.

[Cog]

The crash in housing prices is the best thing that has happened to this country for decades. At last some reality peeks through the fantasy and its scares the hell out of people. Good. It should scare them and hopefully teach them something about math.

[ralfy]

Also, easy credit might be based on private housing, as home prices are connected to borrowing and consumer spending.

[vision-master]

The crash in housing prices is the best thing that has happened to this country for decades. At last some reality peeks through the fantasy and its scares the hell out of people. Good. It should scare them and hopefully teach them something about math.

Ancient Egyptian Mathematics

[Pops]

I can only see 3 way for that to happen,

1. We socialize the debt.
2. We go the Zombie Bank route like Japan and keep bailing the banks and wait until the houses moulder and the paper expires - or inflates away.
3. We change the rules to make the banks own up to their mistake and take the loss.

Looks like anything but #3

FedGov to "facilitate" transfer of bad REOs on bank's book to the private sector. Of course the Banks need to have more than the properties are worth and the private sector wants to pay less than the bank's paper is worth...

Who do you think is gonna get tapped for the difference?

H/T SAR