Let’s take a look at a few charts relating to the US property market. And although we may feel detached from what is happening to US property and its toxic subprime mortgages, we Europeans (and Spaniards in particular) must follow this market with great interest, as it foreshadows what will happen to all of us a few months down the line. The fact is that, paradoxically, the New World foreshadows the future of the Old Continent.
The first graph illustrates the dramatic shift in home ownership trends in the US. The latest figure stands at 67.91% for the third quarter of 2008, which is on a par with the summer of 2001. Leaving aside those who are homeless or crammed into relatives’ homes (and there are more and more of them every day), this decline in home ownership is inevitably offset by an increase in the proportion of people living in rented accommodation.
The following graph provides an interesting insight, as it shows the percentage of vacant properties – that is, those that have been unoccupied – over the last 50 years. In the first two decades, we can see that the average stood at around 1.51%, whilst in the last 20 years and up until approximately 2006/7, the average remained at 1.71%. Since then, the percentage has soared to almost 3% today.
But why are there more empty homes now, when it seems there are more tenants looking for a place to rent? The answer is clear: The owners de facto These vacant properties are owned by financial institutions. And these do not allow mortgage defaulters to continue living in the property. However, as the mortgage foreclosure process (foreclosure) and is currently under foreclosure, it cannot be let to anyone either. Nor will that be the future intention of the entity that ultimately takes ownership of the property. It will remain vacant until a buyer is found, whether scavenger or end users. Nor are owners of distressed properties—those struggling with financial difficulties who have fallen slightly behind on their multiple debts but are still relatively far from facing repossession (by several months)—willing to rent out their homes. In these cases, only a sale – even at the price of the debt – can get them out of the hole. Sales that, in many cases, will never take place before foreclosure, and even if they do materialise, they will not prevent many multiple property owners (whose properties and mortgages are worth more than their current market value) from falling into widespread household defaults.
«Over the next two, three or four years, we are likely to see the worst of it. In other words, these will be the worst years for the governments that will have to absorb the loans, which are now turning into foreclosures that cannot be liquidated; but there is an aggravating factor that will make them radically different: Unlike the lending institutions that sold the loans, the state or the ad hoc quasi-public bodies will not be able to afford the mass repossession and eviction of their population. Social solutions may be adopted to keep tenants in what were once their own mortgaged homes in exchange for rents well below market rates. They may also have limited options to buy in the future. But what seems unthinkable is that the enforcement of mortgages by public bodies would create a social and human problem for millions and millions of people. A genuine housing subsidy in the truest popular style (that of the Chinese Communist Party, not the PP). »Against a backdrop of lean times and rising arrears, the number of vacant properties is rising steadily, despite the increase in demand for rental housing.»
And finally, a chart showing the number of properties to let. Occupied spaces are shown in blue, and vacant spaces in red:
As is clear to see, over the last four years the number of units has risen, reversing the trend that began in 1995. More than 3.5 million units have thus been added to the US market; however, only 1 million have been built for the rental sector. In other words, 2.5 million homes have shifted from the owner-occupied market to the rental market. And among them we find a variety of motivations: investors buying properties to let and generate rental income (a risky practice in falling markets unless the properties are of the very highest quality), second and third homes whose owners need to let them out and which until now had been kept for their own use, property developments converted during construction due to the foreseeable inability to sell, individuals less burdened by debt who are entering the rental market whilst waiting for sale prices to reach the value at which they have mentally anchored themselves, etc. If all these properties had gone on to swell the supply of properties for sale, the collapse in property prices would have been far more severe.
In short, we are likely to continue to see falls in property prices, rises in the vacancy rates for owner-occupied homes and, to a lesser extent, increases in the vacancy rates for rental properties as well. Looking on the bright side, we might expect that forced owner-occupier vacancies will generate sufficient rental demand to offset the migration of owners into the rental market. But personally, I believe we won’t see this for another three or four years, with rental prices remaining fairly stable or even falling slightly in the short term.
Despite what some optimists or politicians might say, the outlook for property owners is cautious. And we've been saying for a long time. The anxiolytics They’ve always been bad travelling companions if the recession drags on. Welcome to the Depression. Cheer up.
The first graph illustrates the dramatic shift in home ownership trends in the US. The latest figure stands at 67.91% for the third quarter of 2008, which is on a par with the summer of 2001. Leaving aside those who are homeless or crammed into relatives’ homes (and there are more and more of them every day), this decline in home ownership is inevitably offset by an increase in the proportion of people living in rented accommodation.
«Over the next two, three or four years, we are likely to see the worst of it. In other words, these will be the worst years for the governments that will have to absorb the loans, which are now turning into foreclosures that cannot be liquidated; but there is an aggravating factor that will make them radically different: Unlike the lending institutions that sold the loans, the state or the ad hoc quasi-public bodies will not be able to afford the mass repossession and eviction of their population. Social solutions may be adopted to keep tenants in what were once their own mortgaged homes in exchange for rents well below market rates. They may also have limited options to buy in the future. But what seems unthinkable is that the enforcement of mortgages by public bodies would create a social and human problem for millions and millions of people. A genuine housing subsidy in the truest popular style (that of the Chinese Communist Party, not the PP). »Against a backdrop of lean times and rising arrears, the number of vacant properties is rising steadily, despite the increase in demand for rental housing.»
And among them we find a variety of motivations: investors buying properties to let and generate rental income (a risky practice in falling markets unless the properties are of the very highest quality), second and third homes whose owners need to let them out and which until now had been kept for their own use, property developments converted during construction due to the foreseeable inability to sell, individuals less burdened by debt who are entering the rental market whilst waiting for sale prices to reach the value at which they have mentally anchored themselves, etc. If all these properties had gone on to swell the supply of properties for sale, the collapse in property prices would have been far more severe.
Despite what some optimists or politicians might say, the outlook for property owners is cautious. And we've been saying for a long time. The anxiolytics They’ve always been bad travelling companions if the recession drags on. Welcome to the Depression. Cheer up.