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.
FYI - Your WaPo link is broken.
These are great articles. I'm glad you pointed them out b/c I am a regular Post reader and seemed to have missed that one.
When I was a college grad with loans, I despaired of ever buying a home without my parents' help. It is really hard for young people to get past their mountains of student loan debt in a tight credit market. I think that trend alone will cause a lot of problems in the housing market down the road.
Posted by: mapgirl | July 13, 2009 at 01:58 PM
The WaPo link is fixed. Thanks for pointing that out (and for the other insights).
Posted by: Michael Panzner | July 13, 2009 at 03:49 PM
Your points are well taken. At the peak of the market with easy lending pushing up home values, everyone was convinced that being a homeowner was the path to wealth. As usual, the consensus was wrong.
Now that home values have collapsed with price recovery doubtful, many may now focus on the realities of home ownership which include: - constant cost and homeowner time of repairs and maintenance, price appreciation that historically has only matched inflation, very high transaction costs for buying and selling, and large mortgage payments that consume the bulk of many people's paychecks.
Home ownership is a smart option for some, but for many, renting may be the best option.
Posted by: Bill | July 13, 2009 at 04:00 PM
Since the end of world war 2 there as been a tremendous
change in the economic conditions of production.Just as
the steam engine changed social & world relations by
increasing production,the advent of high tech. computerized
world & the invention of robots, rending obsolete human labor,
means that there is no returning to the old way of manufacturing,
retailing and financing,add to that the negation of the $ as
a world currency,plus the rise of new powerful competition, the
dwindling of natural resources,and some still think that real
estate caused all this! SUCH FOOLISHNESS!!
Posted by: roger | July 13, 2009 at 04:49 PM