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Although modest
rebounds or moderation in the pace of decline in some housing statistics
(e.g., three straight gains in monthly housing starts, existing home sales up for two months in a row, pending home sales rising for four consecutive months) has fooled
convinced some observers that we've hit bottom in the housing market, plenty
of other data suggests such optimism is misguided, to put it mildly.
Aside from the fact
that inventories remain bloated and house prices relative to incomes and
rents are still above historical norms (even with the declines we've seen
already), harsh economic realities are exerting relentless downward
pressure on the demand side of the equation, shrinking the pool of potential
buyers and undermining the imperative that drove qualified, marginal, and
unqualified prospects to make major sacrifices in their lives so they could
become card-carrying members of "the ownership society."
Below are three
recent reports that suggest to me, at least, that the last thing many Americans
are going to be thinking about in the immediate years ahead is
the notion of taking on a mortgage and all the other obligations (e.g.,
taxes) and risks associated with owning a home (hat tip to reader J.C. for
the first two articles):
1. "Fewer New Households Formed in Recession" (Washington
Post)
Unemployment Likely
to Make The Trend Worse
The number of people
setting up their own households has fallen to some of the lowest levels in a
generation, a trend that threatens to prolong the recession.
Many people, young
and old, who in more promising times would be out on their own, are finding
themselves like Alan Ridenour -- stuck at square one.
A few months ago, the
22-year-old Texan had imagined himself going from government-agency intern to
financial analyst, moving out of his college dorm room and into a place of
his own.
That was more than 50
job applications ago. He is still an intern. And instead of his own place,
his current address is the couch in his sister's place.
"It's not
exactly how you picture yourself out of college -- in an internship," he
said. "You got to eventually get a job that pays the big-boy
bills."
The recession has
wreaked havoc on all sorts of life plans. Tumbling stock prices have cut
retirements short. Layoffs have forced middle-aged children to move in with
mom. Falling home prices prompt unhappy couples to rethink divorce. The
larger consequence of all these discrete decisions is that Americans are
forming fewer households, which in turn helps prolong the downturn.
Government data
suggest that the recession has helped push down household formation. Between
March 2007 and March 2008, the number of new households -- which is defined
as any group of people sharing living arrangements -- grew by 772,000, to a
total of 116.8 million, compared with an increase of 1.63 million a year
earlier, Census Bureau data show.
Household formation
rates could keep falling, said Richard Moody, chief economist for Forward
Capital, a real estate investment and research company, because of the strong
correlation between job loss and household formation. With unemployment not
expected to peak until next year, "a lot of that isn't reflected
yet" in the data, he said.
Fewer new households
mean less demand for housing, furniture and paint, and less work for
electricians, carpenters and real estate agents. The National Association of
Home Builders estimates that the typical buyer of a new, single-family home,
for example, spends $7,400 more than similar homeowners who don't move.
Household formation
rates are also key to clearing the excess housing inventory, which is
dragging down home prices and prolonging the housing slump. The authors of a
study released in June by Harvard University's Joint Center for Housing
Studies concluded that the glut of roughly 1.5 million new homes created by
years of overbuilding during the housing boom would be gone by now if
household formation rates had not fallen below historic levels.
Demographers and housing experts
attribute the drop in household formations to millions of individual
decisions to forgo immigrating to the United States, to put off a move, or to
bunk with friends and family for a while.
Ivy Hover has been crashing with
relatives for nine months after losing her Las Vegas house to foreclosure.
Hover, a journalist, moved to Oregon, where she grew up but had not lived in
for 20 years.
She splits her time between a
cousin's place in Portland and her parents' home in Salem while she looks for
work in both cities. At times, she said, sharing a roof with mom and dad
again has been like entering a time warp.
"It's not my childhood
house or my childhood bedroom," Hover said, "but they're always
your parents . . . they'll always tell you what to do. Then I'm like, ' Wait,
I'm 40.' "
Housing economists have a
slightly different term for Hover's feelings. They call it pent-up demand and
regard it as a good omen for the housing market. Past recessions have shown
that "household formation comes back quickly . . . if people even think
the employment situation is improving," said George Masnick, a
demographer for Harvard's Joint Center for Housing Studies.
This recession, however, may not
follow past patterns because consumers are constrained in ways not seen after
past downturns. They have lost record amounts of wealth and scaled back
spending. Even after the recovery begins, job creation is expected to be
sluggish.
The downturn also appears to
have pushed down immigration levels, mainly by discouraging people from
settling in the United States. Immigrants drive a significant portion of
household formation. Immigration and housing experts do not know yet if
in-flows will return to pre-recession levels soon, especially if jobs remain
scarce. In-flows of illegal immigrants in particular stopped rising last
year, for the first time in six years, according to estimates by the Pew
Hispanic Center.
Recent immigrants have been hit
hard by the declines in construction and manufacturing, but the recession
doesn't appear to have sparked an exodus. Instead, they are sticking it out,
which often entails doubling up.
After he was laid off in March
from a construction job, Santos Duran, 36, moved from a two-bedroom apartment
he shared with his brother into a house in Silver Spring with two families
and two other boarders. He went from splitting $1,400 in monthly rent to
paying $350, which allows him to get by on unemployment while he hunts for
work.
Twice a week, Duran, who belongs
to the Laborers' International Union, treks to the union hall to inquire
about jobs. He's filled out more than 20 applications and hasn't heard back
from a single employer -- a first for him since he emigrated from El Salvador
in 2001. "This is a hard year I'm having," he said. "The
hardest I've ever had."
Duran finds living in an
overcrowded house uncomfortable, but he's not eager to leave.
"I don't think I'd move as
soon as I got a job," he said. "I need to wait until I feel the
economy recovers a little bit more."
2. "Americans
Swap Homes for Hotels as Recession Bites" (Reuters)
Some Americans are swapping
homes for motels as the ranks of the homeless swell during the recession,
crowding out shelters and forcing cities and states across the country to
find new types of housing.
In Massachusetts, a record
number of families are being put up in motels due to high unemployment and
the rising number of homes going into foreclosure, costing taxpayers $2
million per month but providing a lifeline for desperate families.
"I feel like this has saved
my life," said Tarya Seagraves-Quee, a 37-year-old former nurse.
Seagraves-Quee has lived in a
cramped one-bedroom suite in a hotel in Cambridge, Massachusetts, with three
of her four children for nearly two months. "I'm managing the best way
possible. I've learned to make things in the microwave oven."
In Massachusetts, homeless
shelters are at capacity. State law requires temporary accommodation for
those without shelter, leading authorities to place 830 families, including
1,125 children, in 39 motels -- an unprecedented number.
"This truly is the highest
we have ever seen it," said Nancy Paladino, director of the family team
for the Boston Health Care for the Homeless.
Other cities are noticing a
similar trend. In Indianapolis, Indiana, overcrowded homeless shelters are
turning families away, forcing growing numbers to seek vouchers for hotels
provided by nonprofit groups such as United Way.
"Anecdotally, it's
increased," said Michael Hurst, director of the Coalition for Homeless
Intervention and Prevention Indianapolis. The advocacy group started to
compile statistics on the number of homeless families living in hotels this
year after noticing signs of an increase.
"The hotel owners will tell
you it has increased. The homeless service providers and the school officials
will say we know there are more people living in hotels and putting their
kids in school because that is the address they are giving us."
'JUST A STEPPING STONE'
In the Dallas-Fort Worth
metropolitan area, the large Wilson family turned to a budget motel as a
weeklong transition between a homeless shelter and an apartment.
"Each step we're going it's
just a stepping stone," said 42-year-old Frederick Wilson as he sat with
his wife, Annette, in a one-bedroom suite they share with four of the six
children in their care, including a grandchild.
Called by God, they said, to
move from Minnesota to Texas, the family has rapidly made a shift from
homeless status to paid employment. Annette has just landed a job as a bus driver,
while Frederick said he will work in an office that offers clerical support
to Medicaid patients.
They spent two-and-a-half weeks
in a homeless shelter in Dallas and were preparing to move into an apartment
from the motel. The Urban League, an organization that helps struggling
African Americans, is paying the $204 cost of their suite, which does not
include sheets, pillows or toilet paper.
In Phoenix, demand for emergency
accommodation is swamping available services as the recession and spiraling
foreclosures turn even more families out of their homes.
One nonprofit bought two former
hotels -- a Days Inn and a Super 8 -- in a gritty downtown neighborhood to
provide emergency accommodation for homeless and low income families. When
the $23 million project is finished in September, it will be able to house
156 families, up from 112 now.
"We've seen a whole new
subset of homeless families due to job loss and foreclosures, and our waiting
list has doubled in the past year," said Nichole Barnes, chief fund development
officer of the UMOM New Day Centers.
"Some were previous
homeowners. Due to the housing market out here, they'd got into a mortgage
with a flexible interest rate. Some were working full time, but lost their
jobs, went through their savings trying to save their home, and then found
themselves without a home due to foreclosure," she said.
FORECLOSURES AND FAMILIES
In many cities, foreclosures are
a big part of a spike in homeless and rise in families living in hotels or
motels.
Nearly 80 percent of homeless
services providers and advocacy agencies say at least some clients became
homeless as a result of a foreclosure, according to a joint report by four of
the largest U.S. homeless advocacy groups.
Staying with family or friends
and in emergency shelters were the most common post-foreclosure living
conditions, followed by hotels or motels, according to the June report.
"In many areas shelters are
now completely full, so the only option to keep their families together is to
rent a motel room for $200 a week. That's pretty standard for many who lost
their homes to foreclosure," said Michael Stoops, executive director of
the National Coalition for the Homeless.
Unlike Massachusetts, most
states do not pick up the tab. "People are spending 80 percent of their
total income on hotels," he said. "And food costs are higher
because they can't cook."
In Cambridge, Massachusetts,
Seagraves-Quee found refuge at a budget hotel after losing her job in Georgia
more than a year ago and going without health care for 10 months. She suffers
from multiple sclerosis, anemia and lupus, and was recently found to have two
cancer spots on her breast. Two of her children, aged 16 and 6, are autistic.
She spent $700 -- almost all her
savings -- on plane tickets to Boston, where she had relatives. Soon the
family was in a shelter.
Local authorities later moved
her to the hotel and Seagraves-Quee was given medical treatment as part of a
program carried out by Boston Health Care for the Homeless.
"Right now, I am picking up
from where I left off in Georgia 10 months ago. When I got here I was in
really bad health," she said. "I've heard some people say 'Oh that
is a ghetto shelter.' But to me it's a wonderful place."
3. "Homeless
Families Spike in the Suburbs" (CNNMoney.com)
The Department of Housing and
Urban Development says the demand for shelter in rural and suburban areas
jumped in 2008. HUD grants $1.2 billion to 400 communities.
Homeless families in suburban
and rural areas jumped by 56% in 2008, according to a government report
released Thursday.
Plus, the number of homeless
individuals in suburban and rural areas spiked by nearly 34%, according to
the U.S. Department of Housing and Urban Development's "2008 Annual
Homeless Assessment Report to Congress."
The report found that despite
these jumps, homelessness nationwide remained relatively stable.
But the spike in suburban and
rural communities, areas that have been especially hard hit by the housing
meltdown, "begs many questions about how today's housing crisis and job
losses are playing out in our shelters and on our streets," said HUD
Secretary Shaun Donovan in a written statement.
Nationally, the number of
families in need of a place to live increased by 9%, the report said.
Meanwhile, nationwide, the
number of individuals without shelter dipped 1% in 2008 compared to 2007. On
a single night in January 2008, about 664,000 people - counting those in
shelter and those unsheltered - didn't have a home. That was 7,500 fewer than
the previous year.
Even with homelessness remaining
relatively steady nationwide, the report noted that more people were coming
to homeless shelters from stable living arrangements, or places they had
lived for one year or more.
Between October 1, 2007 and
September 30, 2008, about 1.6 million homeless people turned to facilitated
housing, after using up hospitality of family or friends.
On Thursday, Donovan awarded
$1.2 billion to over 400 communities across the nation to get families that
fell into homelessness back into homes quickly - or prevent them from
becoming homeless in the first place.
"The Administration's
aggressive approach to economic recovery recognizes that during these
difficult times, families in certain areas of the country are at extreme risk
of falling into homelessness," said Donovan.
The funds are part of the
American Recovery and Reinvestment Act of 2009. A total of $1.5 billion has been provided for short and medium-term rental assistance - between
3 and 18 months worth - to individuals and families in the Homeless
Prevention and Rapid Re-housing Program (HPRP). In addition, the funds will
go toward utility deposits, utility payments, moving cost assistance, and
hotel vouchers.
While only $1.2 billion of the
allocated $1.5 billion have been awarded, the plans for the remainder of the
funds will be released in the next weeks.
"This is money that will
not only spare families the hardships of homelessness, but will save
taxpayers significant money in the long run," said Donovan in a written
statement. "Often times, a little bit of financial assistance can make
all the difference between a stable home and being forced to live in a
shelter or on the streets."
In order to keep a closer watch
on homelessness in the wake of surging foreclosure rates and record-high
unemployment, HUD will increase its frequency of homelessness reports. It
will release a Quarterly Homeless Pulse Report starting with the first
quarter of 2009.
Even as the 2008 homelessness
report showed an increase in homelessness in the suburbs, homelessness
remained concentrated in urban areas. On a single night in January, 20% of
homeless people were located in Los Angeles, New York, and Detroit.
Michael J. Panzner
Editor, Financialarmageddon.com
Also
by Michael J. Panzner
Michael J. Panzner is a
25-year veteran of the global stock, bond, and currency markets and the
author of Financial Armageddon: Protecting Your Future from Four Impending
Catastrophes, published by Kaplan Publishing.
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