Sam Zell says homeownership will fall to 55%

[Cal C.]

Legendary real estate investor Sam Zell believes (or at least purports to believe) that homeownership will fall to 55%, well below the 64% it is at now and far from the ~69% we saw prior to the crash. Here is the article. Not saying I believe it or not, but it is a heck of a datapoint.

The U.S. homeownership rate may fall to as low as 55 percent because more Americans are choosing to rent as they postpone getting married and having children, said Sam Zell, chairman of landlord Equity Residential.

Demographic and lifestyle changes, more than economic factors, are driving down the ownership rate over the long term, Zell said yesterday at the Milken Institute Global Conference in Beverly Hills, California. As of 2010, about 54 percent of adults were married, down from 57 percent a decade earlier, according to the U.S. Census Bureau.

“The deferral of marriage has such a staggering impact on real estate and I just don’t think people focus on it,” said Zell, 72, whose Chicago-based Equity Residential is the largest U.S. apartment landlord. “I don’t think the multifamily market has ever had a better set of future demographics.”

The homeownership rate fell to the lowest in almost 19 years, declining to 64.8 percent in the first quarter from 65.2 percent in the previous three months, the Census Bureau said today. Recovering home prices and rising mortgage rates have put real estate out of reach for some would-be buyers. Homeownership peaked at 69.2 percent in 2004.

The median age of marriage rose to 28.2 for men and 26.1 for women in 2010, up 1.4 years for men and 1 year for women from a decade earlier, continuing a trend of later wedlock that dates back to 1950, Census Bureau data show.
Postponing Children

Zell also cited reports of a growing number of women freezing their eggs to postpone having children while they pursue their careers. That delay will further reduce demand for single-family homes, he said.

Equity Residential (EQR) owns or has investments in about 110,000 multifamily units. Of the 18,000 rental apartments the company has in New York, 45 percent are occupied by single people, Zell said.

“It’s happening all over the country,” he said.

[Jon Holdman]

I think his prediction may well be correct. Its always difficult to make predictions, especially about the future. But he's extrapolating some trends that are pretty strong.

As I've written many, many times a property you live in is an expensive doo-dad, same as car or boat. And as for many other expensive (and inexpensive) doo-dads, there are industries in place to convince people they should spend their limited income on these doo-dads. Housing has not only several powerful groups promoting "the American dream" of home ownership, but its also embedded deeply in government policies. But ultimate consumers make choices about where to spend their money. There are many places in this country where you can get more for your money by renting than you can by buying. And the price of entry for renting is dramatically less than for buying.

Buying a residence is also a form of economic handcuffs. There was a recent thread about someone who was being forced to relocate by their employer but was underwater on their house. For that person, a bad situation of the forced relocation is being made worse by owning a house. Even if they had to break a lease they would have been better off renting.

For younger folks just getting started on their careers, that's an important consideration. Once upon a time "starting your career" meant getting a job at the same factory your dad and granddad worked at. And you had some assurance you would work that job for 30 or 40 years. So putting down roots and buying a house with a 30 year mortgage meant you would live in a free and clear house down the road. Now life is much less assured. The exoribant costs associated with buying and especially selling houses mean that once you've bought a house you've just signed up for a big financial hit if you have to sell. So renting makes even more sense.