Most realtors would read the latest numbers on the continuing plunge in home ownership rates and start slowly banging their head against the desk in frustration. That must make us something of an oddity in the real estate industry because we think this is great news for people like us (and you, hopefully) who are poised to take advantage of income property investing.
Here’s the lowdown. You might make some money along the way selling houses to people who just want to move into the American Dream. Nothing wrong with that, but it’s not where the serious money is at. To make real money as a realtor, you need repeat business. This is the case in any almost any area an entrepreneur chooses to pursue. As they say, 80% of your business comes from 20% of your customers. Repeat customers are solid gold! The problem with real estate is that a person buys three, maybe four, houses in a lifetime.
Here’s what we teach at AIPIS. If you’re going solely after the American Dream market, you’re misplacing your energy, to a large extent. What you need to be looking for is investors. A serious investor who develops a relationship with a realtor he likes might buy dozens of properties in a single year. And he might do that every year! Or maybe he’s only good for five properties a year. Or three. Or even one. You’re still better off than with the family who buys a house and keeps it for the next twenty years.
We’re not saying that you shouldn’t tend to the family man if he comes looking for you but it simply makes sense to put your energy into that which stands to make the most money. How does this tie into low home ownership? It’s pretty simple. A low home ownership rate doesn’t mean that less money is being spent on lodging – people still have to have a place to sleep at night – merely that it’s targeted in a different direction. Where is it going? Rentals! The rental market is booming and won’t likely be slowing down any time soon.
What are you going to do about it? The first thing we suggest is to get into income property investing yourself and become a landlord. The second best option is to start looking for investors to turn into clients.
If you’re interested in more about the lower rate of home ownership in America, please read the following article from the Mortgage Banker’s Association Research Institute for Housing America. It’s eye opening stuff…
The drop in the homeownership rate from an all-time high of 69.2% in 2004 to 66.4% in the first quarter of 2011 reflects a decline from unsustainable levels to something closer to historical averages, according to a study released today by Mortgage Banker’s Association’s (MBA) Research Institute for Housing America (RIHA). While the homeownership rate may have bottomed out, it could fall another one or two percentage points because of tightened credit and other factors, the paper says. Titled “Homeownership Boom and Bust 2000 to 2009: Where Will the Homeownership Rate Go from Here?,” the study was conducted by professors Stuart Gabriel of UCLA’s Anderson School and Stuart
Rosenthal of Syracuse University. They found that the increase in the homeownership rate in the middle of the last decade extended to all age groups but was most pronounced among individuals under age 30. These increases coincided with looser credit conditions that enhanced household access to mortgage credit, along with less risk-averse attitudes toward investment in homeownership. Following the crash, these trends have reversed and homeownership rates have largely reverted to the levels of 2000.“How much more might the homeownership rate fall? The answer depends on uncertain forecasts of attitudes towards homeownership
and changes in the credit market and economic conditions,” concluded Rosenthal. “If underwriting conditions and attitudes about investing in homeownership settle back to year-2000 patterns and, if the socioeconomic and demographic traits of the population look similar to those of 2000, then the homeownership rate may have bottomed out and will not decline further. If, instead, household employment, earnings and other socioeconomic characteristics over the next few years remain similar to those in 2009, then homeownership rates could fall by up to another 1
to 2%age points beyond 2011. Those declines are likely to be greatest in cities and regions in which house prices were most volatile in the last decade.”Key findings from the study include:
-A combination of changes in mortgage credit standards and attitudes towards investment in homeownership likely contributed too much of the boom and bust in homeownership over the decade. As credit conditions loosened in the first part of the decade, many people of all ages who would have remained renters instead became homeowners. With the financial crash, the recession, and tighter credit conditions, homeownership rates have fallen back to levels close to those of 2000 for most age groups.
-Changes in the population’s socio-demographic composition and economic attributes also served to lower homeownership rates between 2000 and 2009. For all household heads age 20 to 80, demographic-socioeconomic shifts pushed homeownership rates down by roughly 2 additional percentage points over the period. These effects were notably different across demographic groups, however. For example, among individuals 25-35 years old, shifts in their demographic-socioeconomic attributes pushed homeownership rates down by nearly 5%age points over the
2000-2009 periods. For African Americans the analogous value was only roughly 1 percentage point.-Individuals appear to have been more risk-seeking in their approach to home buying in the first half of the last decade. This changed to a more risk-averse posture following the real estate meltdown.
-Between 2000 and 2009 there was a one percentage point increase in the homeownership rate. But, were it not for the shifts in access to homeownership through easier credit and the changes in socioeconomic conditions, the homeownership rate would have actually fallen between 2000 and 2005, rather than increasing.
-Homeownership is deeply embedded in American culture and long has been a symbol of economic achievement in the United States.
The recent sharp decline in the homeownership rate has symbolic as well as tangible adverse effects on the economy, with home sales and construction activity remaining near all-time lows,” said Michael Fratantoni, Executive Director of RIHA and MBA’s Vice President of Research and Economics. “This is another in a series of studies that RIHA has issued on the issues of household formation, borrower attitudes after the recession and homeownership. Single- and multifamily lenders, other participants in the real estate finance industry, and policymakers can utilize this research and assumptions on homebuyer behavior and credit availability to form their own forecasts regarding the likely path of the homeownership rate and implications for the mortgage market going forward.”
The AIPIS Team
(Flickr / striatic)