Homeownership at 18-year-low: Episode #358

Todd: Hello. Welcome to Todd Miller TV. So just found out today that we were at the lowest level of home ownership in 18 years. Now, I will put this in perspective. That’s a percentage.

So the actual number of homeowners is even less because it’s a percentage. We have a lot more houses. So what that means is that more houses are owned by investors today, probably than ever, like more number of houses.

Oana: Right.

Todd: OK. So where does that put us with having – being basically at the same point we were 18 years ago?

Oana: Well, it means that a lot of things are probably going to change in ways that maybe people haven’t considered.

Todd: OK.

Oana: With the number of home ownership declining, we might even see tax changes. We might even see changes. The home interest deduction may be going away, so that may be a realistic thing that may be happening which will change the way people look at homes.

Todd: Do you think that would make things even worse? The government has always done things to incentivize people to go out and buy a house. So do you think by taking that away, they even make it more of a disincentive and make it more likely for people just to become renters?

Oana: I think that is a significant possibility. The market has changed a lot. I mean we have these hedge funds that have now gone under comfort zone and purchased hundreds of thousands of homes in dozens of markets across the country. So they are a major block. There are all kinds of changes. So change is good. That’s what I want to kind of emphasize. Change is good. Change is good because it promotes new opportunities where there weren’t before.

Todd: The average investor owns five properties. Those are the numbers. So that’s average. Some own more. Some own less. Where do you see then – because like right now, the market has been appreciating, like last year 24 percent.

So that means in Las Vegas. That means investors in Las Vegas if you think about it, if you own five properties in Vegas and they were $100,000 properties, they’re all worth $124,000 because they went up 24 percent.

So in a year, you made $125,000 of equity in a year because five properties appreciated by roughly $25,000. Some homeowner didn’t get that appreciation but later when they sell or if they want to use that cash for something, that they can do that.

Oana: Which again that goes back to the same thing I said. That’s a new opportunity. That means that these investors were not going to get – were not interested in that home interest reduction anyway because they get to deduct everything anyway because it’s an investment. So that’s a whole separate ballgame right there.

So now these investors are still getting all these benefits and the really cool thing for them is they’re making double digit returns in a market where if you put your money in a treasury bill or in the bank, you’re losing money everyday because inflation is going up at a higher pace than what you’re going to be earning in the bank or on the treasury bill.

So they’re making money in this market and that’s what I mean about opportunity and change being good.

Todd: OK. So how does a person who – well, interest rates have gone up too, like almost a percent. That number in 2012 and 2011 where – was it like three percent for a 15-year? I believe that’s gone forever. I mean I don’t know that we’re ever going to see a three percent 15-year fix in like a 3.75 or whatever 30-year fix.

Oana: OK. So you’re not going to see that but what that’s going to do, that’s going to bring back to the marketplace the ARMs, the interest rate loans where they’re at a low rate for one to three, to five years, and then they adjust. OK? Those adjustable rate mortgages are coming back. Also historically, you have to remember that just because interest rates are going up, that really has very little impact on the price of homes, on their appreciation. So that’s a whole independent story right there.

Todd: OK. So in sort of in closing what can you see in the next year or two – because we know that over the last five years, investors in Las Vegas have bought 50 percent of the houses or a little more than 50 percent and they paid cash for them.

Oana: Yes.

Todd: So they’re never going to get foreclosed.

Oana: Right.

Todd: They’re probably never going to sell because what they paid for the house and for the rent they’re getting, they will never get that kind of return on any other …

Oana: Well, I would kind of say not so fast because remember, a lot of the investors who purchased particularly in the last two years in Las Vegas in particular are the hedge funds and hedge funds are not known for sitting on their investments. They are known for liking to work with their money. So I think that they will be flipping up properties. When they’re going to flip that, I can’t answer, but they will be flipping their properties probably faster than an individual investor because hedge funds make money for the fund in a couple of different ways and then for the fund managers, one of the ways that they make money is by working with the money. If the money is just sitting there and it’s not being worked with, then they’re not making money.

So that’s a whole different area that that’s different than what we’ve had to deal with in the marketplace before.

Todd: Do you think there’s opportunity in the next year in this market for investors to still get a decent return, monthly cash flow plus a long term return?

Oana: Absolutely. Yes. Look, in every market there’s opportunity. It’s jus a matter of finding that and if it was super easy, everybody would be doing that. OK? So it does mean that our investors need to do a little bit more homework, need to be a little bit more savvy, and it’s not just oh, find me any property and let’s buy it.

Todd: OK. Cool. All right. So I just want to share that with you, the number that we’re in an – where we were 18 years ago for home ownership and given the fact that the market – that number of houses has grown, what that means is that there are far more people who are investors who own houses than probably have – there are probably today more investor-owned houses than there have ever been ever and that’s partly because we have more houses than we’ve ever had.

Oana: And because we have institutional investors playing at the single home family level.

Todd: Right. Plus I think a lot of people when prices tanked, took money out of other equities and said, “I’m buying real estate.”

Oana: Absolutely.

Todd: And they moved into that in a big way.

Oana: Absolutely. We saw that in Vegas back in 2004, 2005. People would come to Vegas for the weekend and leave having bought a house.

Todd: Yeah, I agree. All right. So that’s my update for today and I hope to see you on another video. Thanks.