Today’s news that national housing prices have double-dipped to a new recession-era low is grim for homeowners, home sellers, banks, builders, and the president. Prices are down in 19 of the 20 biggest metro regions Washington, D.C., is the exception. And given the 1.9-million-house backlog in the foreclosure pipeline, nobody expects prices to rebound any time soon.
But these data can be interpreted another way. The American economy is making a significant shift from buying to renting, and that may ultimately be good news. According to a USA Today analysis of Census data released this weekend, since 2006, the number of households that rent has grown by about 700,000 a year, while the number of households that own has fallen by about 200,000 a year. One reason is macroeconomic. The unemployment rate remains high and wages are down, meaning many people simply cannot afford to buy a house. Plus, nobody wants to take the risk of selling into a down-market. But there are also indications that Americans are electing to rent and that is a very good sign.
Contrary to the housing-bubble dogma that a mortgaged apartment or house provides a pathway straight to the American Dream and contrary to the tax code, which encourages buyers and discourages renters with a huge break for mortgage interest renting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.