Weekend Reading: Renter Nation

 

“The psychological factors are harder to assess. People aren’t flipping condos for sport the way they were during the bubble when mortgages were available to anyone regardless of whether they had income or assets. Yet it seems there’s a widespread desire to own assets – stocks, bonds, and real estate – regardless of price. It’s not an obviously happy mania, where people are motivated by promises of great wealth. It’s more like a need to be an asset owner in an economy that continues to hurt workers without college degrees and becomes more automated. Nevertheless, the price insensitivity of many buyers is enough to cause concern.” – John Coumarianos

It is an interesting comment and John is correct. Low rates, weak economic growth, cheap and available credit, and a need for income has inflated the third bubble of this century.

 

But when it comes to housing, as I was digging through the employment data yesterday, I stumbled across the “rental income” component which is included in national compensation. When I broke the data out into its own chart, I was a bit surprised.

Let’s step back for a moment to build a bit of a framework first. While there has been much speculation about a resurgent “housing boom” in the economy, the data suggests something very different which is that housing has simply become an asset class for wealthy investors to turn into rentals.

As the “Buy-to-Rent” game drives prices of homes higher, it reduces inventory and increases rental rates. This in turn prices out “first-time home buyers” who would become longer-term homeowners, hence levels of homeownership rates first seen in the 1970’s. (Also, note surging debt levels are supporting higher homeownership.)

 

The chart below shows the number of homes that are renter-occupied versus the seasonally adjusted homeownership rate. As noted above, with owner-occupied housing at the lowest levels since the 1970’s, “renters”have become the norm.