Friday, April 9, 2010

1.2 Million American Households Lost in Great Recession - Through 2008

While we have discussed this trend in 2008 [Jan 16, 2008: Interesting Human Economic Toll Piece in NYTimes] as the stock market was not too far from all time highs and "everything was peachy"....

One consequence is an upending of the traditional pattern, in which middle-aged children take in an elderly parent. As $15-an-hour factory jobs are replaced by $7- or $8-an-hour retail jobs, more men in their 30s and 40s are moving in with their parents or grandparents.

....and 2009 I've never seen it quantified, hence this quite remarkable statistic below is quite interesting.  As bulls wonder why housing has not rebounded, even with generational lows in (Fed induced) mortgage rates AND home affordability - it appears much of the answer is quite obvious.  Through 2008 (vs 2005), 1.2 million American households have simply vanished - despite the annual population growth.  I wish I had data for the late 70s / early 80s which (in these eyes) is the only comparable recession post WWII, to see what sort of shrinkage the US experienced then - but we are definitely seeing some amazing things in the underlying economy.  The formerly always mobile American has been unable to migrate to the jobs (mostly centered around Washington D.C. nowadays) [Dec 24, 2009: Recessions Alters Migration Pattern in the U.S.] [Apr 23, 2009: As More Homes Fall Underwater, Trapped Americans Cannot Migrate].... many are sticking in marriages because they cannot afford divorce [Apr 8, 2008: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces] .... and it appears well over a million former households [and counting] have withered away, leaving countless bachelors living with mom and dad again even at the ripe age of 35.  (data only through 2008, 2009 surely increased these trends)

But let's stop all this unhappy talk.... we have to view EVERYTHING in Kool Aid glasses (i.e. if aliens came to Earth and destroyed every building except for the Fed. you would want to buy stocks \as it would be bullish since it would mean low rates for an extended period), so let's give the bull case:

"That's 1.2 million extra households that will soon be buying houses as economic recovery sweeps the nation!  Boo Yah!" 

Or another tact: assuming some proportion are moving in with family at "rent free" or "much lower than they used to pay in mortgage or rent" that frees up money to go shopping, which is the main driver of the US economy.  In that case, just imagine how great the economy COULD BE if we can shrink households by another 20%?  40%? Put every American under 1 roof? (gulp, gulp....mmm, Kool Aid) 

Via CBSMarketwatch:
  • The number of American households dropped by an estimated 1.2 million between 2005 and 2008, even though the population increased by 3.4 million in 80 of the largest metropolitan areas during that time, according to a new study by a professor at the University of Southern California.
  • More young people are living with their parents instead of moving out, postponing the creation of their own households. Meanwhile, more families are combining households for economic reasons, including the loss of a home due to foreclosure, according to Gary Painter, associate professor in the School of Policy, Planning and Development at USC. 
  • The decline in the number of households contributed to the excess supply of apartments and single-family homes on the market.
  • Also, the recession caused a five-fold increase in the rates of overcrowding, he said. A household that has more than one person per room indicates overcrowding.  (that might be even more remarkable... oh well, living 2 in a room allows for more clothing purchases and the ability to maintain that service bill for the iPhone. Priorities!)
  • While the analysis incorporates data only through 2008, Painter said the decline in household formation likely continued through 2009. "Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all," he said.
Here is the real reason housing is not rebounding... the long term rate of home ownership is 65%.  By doing all sorts of stupid things we were able to get this rate up an additional 4%.  That +4% has helped caused an international financial disaster.  (a small price to pay to keep the ponzi economy going for a few more years, right Ben Greenspan? Or is it Alan Bernanke?)  But even now, after years of carnage we are still ABOVE the long term ownership rate... stuck at 67%.*  Which is why the FHA has to do almost all the same stupid things the private sector was doing just to maintain status quo.   Also keep in mind part of this 67% are what I will call faux homeowners - they put little or nothing down, and no longer bother to make payments.  So what's the true home ownership rate if we excluded millions of squatters?  It doesn't really matter, since squatting is now a strategy by large amounts of Americans.

*only in America is 0% down, with seller based financing, using option ARM loans called "ownership".
  • The national homeownership rate has fallen to just above 67%, from above 69%. Renter household formation dropped even more than the formation of homeownership households.

Fun snippet....lack of financial education in US public schools ---> working like a charm.
  • Native-born Americans showed a larger decline in household formation and a larger increase in overcrowding rates than immigrants.

MSNBC does the same story with a more human interest angle...  again showcasing the 'underemployment' angle in America.  I encourage Mr. Brown to give up his old school entrepreneurial spirit (private sector work stinks, you actually have to take risks that can backfire)  and instead take a job with government - pay is great, benefits wonderful and job security immaculate.  Stop trying to create your own way, Mr. Brown - the state is here to offer you its teet.  Take it!
  • Since Richard Brown lost his job to the recession and his Boston home to foreclosure a year ago, he’s been working short-term consulting assignments until he gets back on his feet. In the meantime, he’s been “couch surfing.”   “I’ve lived with my brother, my cousin, my friend and my dad,” he said. “The IRS keeps calling me, asking me: ‘What’s your address?’ And I say, ‘What week is this?’”
  • Armed with college degree and an MBA, Brown, 49, built a solid resume over three decades as a corporate controller for several Fortune 500 companies, including W.R. Grace and Wal-Mart, (big mistake... I don't see even 1 federal agency on his resume) before launching his own global consulting business with clients in Europe and Mexico. But when the Panic of 2008 sent clients scrambling, he was unable to keep up with a jump in his mortgage payments and lost his home to foreclosure.
  • ...renters also have been forced to double up or move in with friends or family. That’s a major reason that the vacancy rate for U.S. apartments stood at 8 percent in the first quarter, the highest level since 1986, according to a report this week from Reis, a real estate research firm.
  • There are currently some 5 million homeowners that are 90 days or more past due on their mortgages  (rent free and loving itIt's mall time! Daddy needs a new iPad!)

As for Mr. Brown?  Welcome to the 'recovery'....
  • He recently move into a rooming house where he continues to track down consulting work.  “I pay $600 for a third-floor room that gets hot in the summer,” he said. “It’s a blow. I don’t belong here. I’m an educated person. I’ve held executive positions. And here I am in a boarding house where Russian is a first language.”

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