Real Estate Prices Stabilize
Recent data consistently indicates that the U.S. real estate market has bottomed out; both total mortgage volume and real estate prices clearly reflect this. However, one must wonder: without government homebuyer tax credits and exceptionally low mortgage interest rates, how far would home prices have fallen? Banks would continue to evict defaulting "owners" from their homes, thereby eliminating debt and clarifying losses on mortgage loans.
Homeownership Rate Falls to Historic Lows
For many Americans, housing prices remain too high, which also creates numerous issues—such as problems with labor mobility and in rental communities—because most people cannot afford to buy a home. A report by Andrew Haughwout, Richard Peach, and Joseph Tracy of the Federal Reserve Bank of New York points out that when considering those who have already lost their right of mortgage redemption, the U.S. homeownership rate has fallen below 61.6%!
The problem is that this decline in homeownership is not what Americans want, although it is not without its benefits: since owners must pay interest on their real estate, they have the incentive to take measures to maintain or increase the value of that property. These investment measures, such as fixing a leaking roof, are closely related to the house itself, as is investing in interpersonal resources within the neighborhood and community.
It is undeniable that many people are still giving up on homeownership. Their logic is simple: the return on investment is no longer the appreciation of the house, but the accumulation of debt. Therefore, when the New York Fed began to focus on the decline in the owner-occupancy rate, what investors were truly concerned about was the rise in personal bankruptcy rates.
The Federal Reserve's report explains why the per capita owner-occupancy rate will decline over the next 5 years: those homeowners with monthly payments will have to save an average of $1,222 more per month if they want to end their current negative equity status and own a new home within 5 years. Thus, we face two choices: either let homeowners continue to lose their mortgage redemption rights, or see a new force emerge in the U.S. financial system to help the country overcome a comprehensive solvency crisis.
The World Returns to the Old Path of "Growth Based on Asset Price Appreciation"
The world's movement toward an asset-based economic boom seems to be an unavoidable long-term trend. We once knew that after the stock market bubble burst in 2000, the real estate bubble expanded rapidly, with home price growth pausing for only a year or two. Returning to the recent bursting of the real estate bubble, we find that most obviously, this market has not only suffered severe losses, but it will also slowly return to the "wealth levels" of 2007. The stock market seems to be entering a period of long-term weakness, while the bond market has replaced the real estate market to begin its expansion.
Coincidentally, the Federal Reserve's latest flow of funds report shows that the authorities hope to see the rise of alternatives to the real estate market.
