Happy Days Are Not Here Again

The level of first-time homebuyers fell to its lowest point in nearly three decades, according to data released last week by the National Association of Realtors. How low is low? Well, it seems that only four out of 10 home purchases are from first-time home buyers, the lowest share since 1987.

So where are the missing first-time buyers? According to Zillow data released last week, more than one-third of working adults are living in doubled-up households. “All those roommates have changed the American housing landscape, with 5.4 million households that would exist under normal conditions instead lost in guestrooms and basements, sharing space with friends, family and roommates, waiting for better economic times,” said Zillow in a press release.

And also from last week was data from CoreLogic, which found U.S. home prices nationwide increased 5.6 percent in September 2014 compared to September 2013; that number includes distressed sales. September was the 31st month of consecutive year-over-year increases in home prices nationally.

Am I the only one that sees something very wrong with this picture? A new generation of homebuyers is avoiding the housing market, and millions of American adults are living their own private “Golden Girls” in shared quarters. Yet home prices have been have been escalating for 31 months, even though more and more people are avoiding the lure of homeownership. And even if people wanted to get a home loan, current regulations prevent many creditworthy people from obtaining funding – thank you, Mr. Dodd and Mr. Frank!

No one likes to be a pessimist – and even fewer like to hear endless pessimistic observations – but it is impossible not to look at the housing data and recognize that something very wrong is percolating. Even the National Association of Home Builders (NAHB), arguably the sunniest of the trade groups, grudgingly admitted things were not so well in a November 6 press release entitled “Housing Markets Inch Toward Full Recovery.” Although the NAHB admitted that one-third of metro areas have not shown a year-over-year improvement, its leadership tried unconvincingly to put a smile on the stagnant state of affairs.
“The markets are recovering at a slow, gradual pace,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “Continued job creation, economic growth and increasing consumer confidence should help spur pent-up demand for housing.”

Not to be openly hostile to Kelly, but what “pent-up demand for housing”? When the pool of potential homeowners continues to shrink while home prices cannot stop rising and credit remains too tight, what kind of results are to be expected?

And when “continued job creation” means an expansion of low-wage and part-time work, “economic growth” is limited to Wall Street and the bank accounts of the C-suite elite and “increasing consumer confidence” is a figment of economists’ imaginations, can anyone seriously imagine that the near-term future for housing is copacetic?

But Kelly’s don’t-worry-be-happy observation pales against the sputtering of no less a figure than Warren Buffett. Last month, Bloomberg reported that Buffett told a Fortune Magazine that he was confused about the state of housing.

“You would think that people would be lining up now to get mortgages to buy a home,” Buffett said. “It’s a good way to go short the dollar, short interest rates. It is a no-brainer. But so far, home construction pickup has been slower than I had anticipated.”

Nonetheless, Buffett believed that he had the answer to get new homebuyers out of the roommate scene and into buying properties as constantly escalating prices: sex.

“Household formation falls off dramatically in a recession, at least initially,” he said. “But that doesn’t last long. Hormones kick in and in-laws get tiresome, too.”

Well, maybe Buffett can use his fortune to buy every would-be homebuyer champagne and oysters – if wishful thinking and dubious economic data can’t fuel a housing recovery, then certainly aphrodisiacs will!

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