Home ownership numbers are currently at their lowest level in the past 18 years, but the overall price of purchasing a home is on the rise. How could this possibly be? To answer this question we must look to the banks. Banks are generating scarcity within the United States real estate market by purchasing up large numbers of homes and at the same time delaying or stalling on specific home foreclosures to suit their own purposes.
Within the past few years the Federal Reserve has continued to keep interest rates on home loans low. Consequently, this has made it possible for private equity firms to purchase homes in bulk using loans which cost them next to nothing. The net result is the outward appearance that U.S. residents are once again purchasing homes and that a full recovery of the housing market is imminent. While this might make for good headlines, looking a little deeper one will find that actual statistics paint a different story. Data analyzed over the past several months shows that large, institutioinal investors are cashing in on the market and gobbling up vast numbers of the available homes. The result? Planned scarcity and home prices escalating to very high levels.
The bubble cometh, and the bubble returneth.
According to the Census Bureau, the total number of families owning homes dropped 698,000 down to 74,511,000 during the first quarter. This is the first decrease in nearly two years. Concurrently, the United States home ownership rate dropped to 65%, the lowest rate since the last quarter of 1995. Further, the home vacancy rate - the ratio of home inventory which is vacant to the amount of homes listed for sale overall - increased to 2.1% during the first quarter of 2013, up from 1.9% from the last quarter of 2012. So what is really going on?
With the banks sitting on over seven million homes and keeping them out of the marketplace, the reduced number of listings creates an environment and outward appearance of limited inventory, driving up prices. These actions signal that a housing market recovery is taking place when it actually isn't.
This deceptiveness on the part of the banks is rendered even more harmful when you realize that higher home prices are preventing some Americans from purchasing the homes that they would otherwise be willing to purchase - if they were able to afford them. Instead, many of these same people are choosing to rent homes instead of purchasing them, often renting from the same banks that are buying up all the inventory in the first place!
So how are the foreclosures doing? With this giant, real estate bubble creation process in the works, banks do not want to foreclose too quickly and are routinely granting concessions to homeowners who cannot afford their mortgage payments. Homeowners delinquent on their payments may be thankful for the extra time, however, the banks are not acting out of sheer kindness. This action is being taken on the part of the banks in order to decrease the overall number of homes for-sale in the marketplace, further increasing the illusion of scarcity. This keeps the banks' prices up on their current inventory, allowing for larger profits to the bank once these homes are eventually sold. Check and Mate.
On a regional level, only the Midwest experienced a rise in home ownership statistics, rising 0.3%. Ownership rates declined in all other regions, including the Northeast, South, and West. Ownership statistics for those over 65 years of age and under 35 years of age also declined. In the meantime, the banks will continue to create ways in which to get the most out of each of their investments while current homeowners who are behind on their mortgage payments are left to wonder if it is even possible to save their homes.
At least that's how we see it. Looking beyond the headlines and one can get a better look at what's actually going on. Do you see it differently? Please leave a comment below.