Join the Fool for a talk with Chris Mayer, who is the Paul Milstein Professor of Real Estate at Columbia Business School. Mayer is also a visiting scholar at the Federal Reserve Bank of New York. His research has delved into topics such as housing cycles, mortgage markets, debt securitization, and commercial real estate valuation.
Mayer puts the housing recovery into context: What does it really mean if house prices dropped more than 50% and are now up 30%? He also responds to the idea that the United States is turning into a society of renters.
Full transcript below.
David Hanson: Hey, Fools, I'm David Hanson, and I'm here with Chris Mayer. He's a professor of real estate here at the Columbia Business School.
First question off the top: Case-Shiller up 12% year over year ... what's your first thought when you hear something like that?
Chris Mayer: The housing market fell too far, and it's kind of recovering a little bit.
Hanson: We're not going back into a bubble?
Mayer: I'm not in the "We're in another housing bubble" sort of world. I think the market just really cratered and we're starting to recover.
Now, we could talk about which places, because I think if you're living in Las Vegas or Phoenix, I think you should not expect that house prices are coming back to where they were, so do some really simple math.
Take a place like Las Vegas, where house prices fell more than 50%, and then you read a big headline that says, "Gee, house prices are up 30% this year." If you do the math on the index, where did you go? Well, you went from 100 to 50, and now from 50 you're up 30%. That gets you up to 65.
It's not minus 50, plus 30. Actually the 30% is off a much lower base so, effectively ... going up 30% makes a lot of headlines. It doesn't mean we're anywhere close to where we were before.
Hanson: Right, so still being down. Some of the narrative out there is that America is moving toward a renter's society.
Hanson: We've seen firms like Blackstone, Silver Bay, American Homes 4 Rent. They're moving into the space as buyers, and then operate as renters. Is this a model that you think could work?
Mayer: I think we should separate the macro headlines about moving to a renter's society -- which I think we're not doing -- with the question of, "Can these business models work well?" Historically, more than a quarter of single-family homes have been rented in some way, shape, or form, but almost all run by mom-and-pop sort of operators.
If you ask, "Could somebody enter that business, consolidate that, run it more efficiently?" the answer is surely yes. That was already true even with a homeownership rate in the mid- to upper 60% range, so these businesses could work whether or not the macro story of "We're moving to a renter's society" works.
I have to say, my own view on that is a little more skeptical, which is ... if you ask, at a given point of time, "Is the percentage of people in their 20s, going to be homeowners, is that percentage going to go down?" Absolutely. The percentage of people in their 30s who are going to be homeowners go down? Absolutely.
Over the lifetime, if you ask typical Americans, their lifetime homeownership rate is close to 85%, so the vast majority of Americans have been homeowners at some point in time. I think that's going to change. I still think, at some point in their lives, the vast majority of Americans will still be homeowners.
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