If challenged to summarize the effects of the great recession on the U.S. housing system in a single word, that word would be “change”.
Change because much of what we have come to understand about housing in America in the post-WWII Era has been undone or upended either indirectly as an unintended consequence of the housing crisis and the unprecedented recession that it precipitated or directly as an explicit reaction to them.
Examples of change abound...
As for unintended change: the current decline in home values of 25% from their 2006 peak now rivals those experienced during the Great Depression, when values fell by nearly 26%; more mortgage holders than ever before - nearly 24% representing nearly 14 million homes - are underwater; and foreclosure rates in the U.S. are at unprecedented levels. And as for intended change, perhaps the best examples exist in the unprecedented levels of government response in the form of TARP, and Dodd-Frank, and the Fed’s response in the form of QEI and QEII, to name just a few.
But most interesting of the intentional changes, and perhaps most profound in their long-term impacts on the future of the U.S. housing system, may be the changing behaviors of the American consumer in response to the great recession. One such change recently reported in the popular media is that interest in home ownership on the part of America’s wealthiest individuals - those most able to afford homes - may be waning in favor of a bias towards renting. It appears that this change in attitude may be a conscious response to recent price volatility and the fact that housing no longer seems to represent a seemingly risk free investment.
While it may be premature to declare that this recently reported trend - especially one limited to such a relatively small segment of the American population - presages an end to America’s love affair with homeownership, it is nevertheless a trend well worth monitoring. At a minimum, such a trend suggests that the economic calculus engaged in by America’s wealthiest individuals in connection with their home ownership decisions may have changed - and changed in a way where capital preservation may now have trumped other factors, including perhaps tax considerations, as part of that analysis. Thus, especially today, on the eve of the next meeting of the President’s Bipartisan Fiscal Commission, one wonders if such a change in behavior - particularly if it becomes an enduring change - won’t ultimately serve as a convenient rationale for reducing - if not eliminating entirely - the mortgage interest tax deduction for America’s wealthiest individuals. READ MORE