Housing Cycle Reaches Low Point
May 2012 | By Lawrence Yun
Home sales volume last year was up modestly over 2010, but there was an important shift in their composition: Investors were stepping up to buy while households dropped back. There’s a positive side to this. Our surveys show that households getting into the market are doing so for all the right reasons. They’re seeking a different home or another neighborhood. They’re not buying just so they can flip the house at the first sign of market change.
These buyers are getting in at the low point of the housing cycle, so meaningful wealth gains over the next few years are inevitable even though financial considerations are not their principal motivation. From 1981 to 2011, despite the housing bust years, home values more than tripled. For that reason, households who bought 30 years ago are sitting pretty financially. Renters’ typical net worth, by contrast, barely changes, so renters today have about $4,000 in net worth, not much different than they had a few years ago. Compare that to home owners, whose net worth is typically around $160,000. That’s down from $230,000 at the height of the housing bubble, but it remains in stark contrast to renters.
Looking ahead, we could see a greater unequal distribution of net worth over time as home prices rise. Those who will benefit the most are those who, like many investors and some households, are buying during this low point. More…