Is the Housing Crisis Changing America?

Posted by Jim DeBellis on May 20th, 2011

The lengthy housing market downturn combined with a severe credit crunch may change the complexion of the housing market, the economy, and the state of the American middle class for decades to come.

The first symptom of this is the huge fall-off in first time buyers. It doesn’t take a mathematical genius to figure out that people who sell one house and buy another do nothing to reduce the inventory of homes on the market; that takes new buyers. With first-time buyer market share dropping 18 percent last month compared to last year, according to UPI.com, the absorption of distressed properties is slowing down and may not even keep up with foreclosures. A difficult mortgage process and tough underwriting standards were cited as major reasons for the drop off. So we have more people leaving home ownership due to foreclosure and fewer new buyers entering the market.

The second factor which is changing the home ownership landscape is the large up-tick in properties purchased by investors. Fifty-five percent of foreclosed properties that needed rehabilitation were purchased by investors last month. With so many homes for sale at bargain rates and with low interest rates, the people who have the money are accumulating a wealth of real estate, which could have ramifications for a long time.

Fewer people will own more of the housing stock and more people will become renters – which will drive rental rates higher and higher. The ultimate result of this phenomenon could well be a deepening spread between a poorer middle class and a richer upper-middle class, which could have a long-term affect on the allocation of wealth, the American dream, and the complexion of both the housing market and Middle America for years into the future.