Friday, September 14, 2012

The American Dream and Renters In Waiting

An article on home ownership in the Real Estate section of the Las Vegas Business Press (9-3-12) caught my eye. It adds to the narrative regarding the struggles of the middle-class.

The story describes the spread between the official home ownership number as reported by the U.S. Census Bureau (most recently 65.5 percent) and the "real" rate as reported by real estate consultants that follow the data very closely (their number is 62.1 percent).

The 3.4 percentage point difference between the office and "real" percentages is accounted for by removing 3.8 million households that are 90 days or more delinquent on their mortgage payments. When these homeowners are pulled and 62.1 percent is used, the level of home ownership is the lowest in 50 years according to the article. I guess that's a story in itself.

Described as "renters in waiting" these 3.8 million are in effect treading water while banks work their way through the large inventory of problem loans. Complicating matters and contributing to a not-so-quick fix are: the shear number of stake-holders involved, understaffed banks, messy loans that have been modified or in foreclosure, state and federal government sanctions or out-right intervention. All this contributing to a slow moving process and much larger spread between the official and "real" percentage, typically around 1.0 percent Vs the 3.4 percent noted above.

One could argue that moving slowly actually helps the overall economy as delinquent homeowners presumably spend what would otherwise go to mortgage or rent payments on items such as food, clothing and necessities that have an immediate impact on the economy.

Just look at the math.

3,800,000 = delinquent homeowners
x  $1,008  = average apartment rent in US
=  $3,830,400,000 per month

The calculation is pretty rough but the point is there's two sides to every coin. All 3.8 million households are not going to move into apartments overnight but there will be a culmination to this at some point. The $3.8 billion per month (or whatever the actual amount) will be missed by the economy. What's more, some percentage of the household members will re-enter the job market to generate more income once outlays for rent and food/clothing/necessities are required. In a sense, there will be a double drag on the economy.

With an estimated 115 million households in the US and an economy (GDP) of $15 trillion, the impact of these 3.8 households will be hard to spot but present nonetheless.

Unexpected consequences to this popped real estate bubble abound, making the task of finding a job a real challenge. However there are relative bright spots, for example here in Las Vegas apartment/condo maintenance workers with HVAC and Pool Certs aren't sitting around. Similar things are taking place in Phoenix and Southern California. Going forward the demand for workers with very specific skill sets and related certification will increase.

Niche specialists will rule the day over the generalists/jacks-of-all-trades.

Of course just more salt in the wound for all those English Lit majors.

Travel well.
John Jeffrey Lundell

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