Trusting Real Estate
Do millennials trust that real estate is a good investment? Collingwood Chairman, Tim Rood, joined Fox Business Network’s Neil Cavuto on Cavuto last week to discuss the impact that the 2007 housing bubble has had on millennial’s perceptions of homeownership. The homeownership rate is at about a quarter century low and a lot of millennials are simply opting to rent rather than buy. Cavuto mentioned that millennials have not seen their parents see a return on housing and are fearful of another housing crisis. Are they missing out on a moment to make a good investment?
Rood thinks they are. He says, “When you think about these [homeownership rate] numbers in the aggregate or in the abstract, they don’t mean a lot. There’s a lot of financial implications when you think about every one percent of that drop is actually one million households that aren’t owning a home. That means there’s one million households that are paying probably thirty percent more a month for their living expenses.”
“There’s always going to be some casualties in housing,” he continued. “If there is a ninety-five percent success rate which means five percent are going to lose their home to foreclosure– obviously it’s a cautionary tale–but that’s ninety-five percent of folks who are going to see the wealth appreciation of homeownership. Which, its important to remember, the household net worth of a renter is like $5,000 in this country. The household net worth of a homeowner is about a $150,000.”
Rood also noted a recent study on baby boomers that found that as seniors passed away most of their financial net worth was in the equity of their home. He says that, “It turns out that only 20% of these seniors, when they passed away had any financial net worth beyond the home equity in their house. So you can imagine, during the most prosperous time that’s the end result, we’ve got to focus on how we can get more folks into housing today.”
Cavuto then mentioned that there are a lot of people in the last seven or eight years who would not have that appreciation at all so they wouldn’t even have the housing component of that wealth. Rood replied, “In real terms we’ve seen about three trillion dollars of appreciation in housing over the last three years. It bottomed out in 2012 but it is rallying. We’re still about 15% from the high.”
Finally, Rood closes by arguing that, “We’ve even seen people who’ve lost their house to foreclosure, there’s six to nine million of these people that have lost their house to foreclosure, that when polled they still say that buying a home is a good investment.”