What's holding back the housing market? In a word, debt. Families who would be moving into new homes are nervous about taking on new debt, and families moving out of homes are walking away from debt they can't shoulder. But the housing crisis is moving into a second stage that threatens to have an even broader impact on people who never thought about owning a home. The homeownership crisis is driving up the price of renting. Here's how (after the gallery of charts, scroll below for fuller explanation):
Between 2007 and 2010, the growth in homeownership collapsed by 50%. Immigration also fell dramatically, reducing demand for new homes. Meanwhile, the jobs crisis forced many 20-somethings who might be looking for their first homes to move back in with their parents. While families consolidated over the last two years, and parents bore a larger burden of their older children's expenses, typical incomes went flat while gasoline costs went vertical, nearly doubling since the nadir of the recession. Utilities have become a major problem, especially for low-income homeowners, who faced the worst of the housing crisis in the first place.
As the housing scene deteriorated, more Americans sought to rent. On a family by family basis, this made economic sense. But on a national scale, the two-year explosion in rent demand put a huge strain on supply in major metro areas. Rental vacancies fell, and rental prices rose. Rents account for 40 percent of the core inflation. Where rents go, consumer costs often follow.
Is this good or bad news for the economy? Like everything else, it's probably a bit of both. On the dark side, inflation in the rental market could feed core inflation in the economy. On the bright side, if short rental supply leads to more construction, that's a good thing. And if rising prices compel employers to pass along the revenue in the form of higher wages, we could finally get some froth in the economy.
Graphs courtesy of the Harvard University Joint Center for Housing Studies.