Mortgage America or Rental America

Lately there has been a lot of talk about how the United States of America is transitioning from a country of home-owners with a mortgage to a nation of renters that are mortgage free. In fact Morgan Stanley recently released a report touting institutional opportunities in the single-family rental market.

Now is a great time for institutional investors to snap up distressed single-family homes and turn them into long-term rental units. The company says the properties don’t compete with the classic apartment rental property, so investors don’t have to worry about cannibalizing their multifamily rental investment portfolios to take advantage of the huge opportunities in single-family rental property ownership. What’s more, Morgan Stanley doesn’t see this shift to rentership as a temporary waypoint while the country sorts out its housing problems; it sees this as a fundamental shift in how the United States will define itself into the future. “America is moving away from a home ownership society and towards a rentership society,” the company says in its report.

The report then lists reasons why they feel they are correct. First they say that homeownerhsip has fallen from a peak of sixty-eight percent to sixty percent, it’s harder to obtain a mortgage, and home-price declines. While I agree that the time is ripe in many locations to snap-up properties as long-term holds as rentals the rest of the above reasons are flawed.

First, homeownership rates at 68% far exceeded historical averages of +/- 60% because people like Barney Frank forced Fannie-Mae and Freddie-Mac into making loans to people that had no business based on their credit profile of ever being a homeowner. This created a housing bubble. So really we are just seeing home-ownership rates return to normal levels. Home-ownership is a responsibility and not a right.

Second, they argue it’s harder to get a mortgage. I’m of the opinion it’s not harder to get a mortgage – it was far too easy for many unresponsible to obtain mortgage credit way beyond their means. Underwriting guidelines are back to where they should be and that means not everyone qualifies for a mortgage.

Finally, thye cite home-price declines. Yes home-prices have declined becasue they were severly over-inflated by a housing bubble thatresulted from the loose mortgage underwriting guidelines. Prices are in my opinion “back to normal” from an artifically high value.

Bottom line – there are gr

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