Inverse Relationship between Home Ownership % and Price Trends

July 22, 2013 – Post No. 22 – Yet, another week of diverse topics.  Must be the summer doldrums regarding news.  But, there are some interesting items to discuss.

GDP – The U.S. Bureau of Economic Analysis is re-stating the GDP (gross domestic product) going all the way back to its inception in 1929!  The change will occur on July 31st.  Significant changes include reclassifying R&D (research & development) from an expense to an investment and treating original works of art like films, music, and books as long-lived assets.  GDP will get a one-time bump of 2.7%.  Remember that when you hear statistics about GDP growth this year (recent articles suggest 2nd Quarter will come in around 1.0% – economists will call this paltry, while I believe it is a solid figure as it corresponds with population growth).

JP Morgan – Surprisingly, it has been a month or more without reporting on a JP Morgan fine.  Last week, it was reported that regulators are nearing a record settlement with Mr. Dimon’s firm to resolve allegations that the bank rigged energy markets in California and the Midwest.  The rumored fine is around $1 Billion.  Way to run a clean company, Mr. Dimon.

Home Ownership versus Price Trends – Financial Times reported that Eurozone residential property prices have hit a 7-year low.  Specifically, Spain prices are back to 2003 levels and Ireland prices are at 2000 levels.  These are the worst performers, which is interesting since USA home prices bottomed out around 1999-2003 levels.  The most interesting fact I noticed in the data was the inverse relationship between price performance and owner-occupancy rates.  e.g. In Germany where less than half of all households own their homes, prices are at 10-year highs.  In Spain, household ownership is over 80%.  Home ownership in the USA neared 70% at the top of the bubble.  It makes sense to me that markets with high owner occupancy have high debt and are most likely to see significant price declines on a cyclical basis.  Also, it is these same markets where price diverges from value frequently and significantly.

Happy Birthday to the future King of England (congrats Kate and William),

George R. Mann, CRE, FRICS, MAI

Managing Director

Collateral Evaluation Services, LLC

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