Owning Home Loses Appeal
Comments:
A change in sentiment from one extreme to another is a classic deflationary indicator. While the change is still underway in the United States, it has not shown up in markets in Canada and Australia to date.
This will soon change.
Deflation is primarily about deleveraging.
It is about demand destruction directed at assets that require large amounts of leverage.
This is why we can have crude oil and food prices rising - inflationary pressures appearing - while house prices drop - a deflationary indicator. Gasoline and food prices do not depend on much leverage. Housing does.
Victoria Pauli signed a one-year lease last week to stay in her rental home in Fair Oaks, California. She had considered buying in the area, where property prices have slumped 57 percent since a 2005 peak.
In the end, she decided it wasn’t worth it.
“I know people who have watched their home values get cut in half, and I know people who are losing their homes,” said Pauli, 31, who works as a property manager for a real estate company. “It’s part of the American dream to want to own your own home, and I used to feel that way, but now I tell myself: Be careful what you wish for.”
The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.
“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”
“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”
Comments:
A change in sentiment from one extreme to another is a classic deflationary indicator. While the change is still underway in the United States, it has not shown up in markets in Canada and Australia to date.
This will soon change.
Deflation is primarily about deleveraging.
It is about demand destruction directed at assets that require large amounts of leverage.
This is why we can have crude oil and food prices rising - inflationary pressures appearing - while house prices drop - a deflationary indicator. Gasoline and food prices do not depend on much leverage. Housing does.
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