High Rents Signal Signs of Life in the Housing Market
Wednesday, June 13, 2012
Swati Pandey

It has been five years since the housing bubble burst, and I’m afraid a full recovery remains several years away. Job growth is weak, money remains tight, and the world is still reeling from the 2008 financial crisis. I’m often asked about my views on the housing market, given my second career in homebuilding. I can tell you that there is one especially encouraging sign of life in the housing market: rents are going up.

Rising rents may not seem like a good thing to anyone who is a renter. But eventually, high rents will start to make mortgage payments look pretty attractive. Before the last bubble, and before Americans got into the game of flipping houses, the only way anyone bought a house was if mortgage payments were lower than the rent. When we started Kaufman and Broad, our business model was based on offering homes with mortgage payments that were less than what young families and first-time homebuyers were paying to rent a two-bedroom garden apartment. Home ownership meant building equity and belonging to a strong neighborhood. It sure beats paying increasing rents and watching your neighbors come and go.

In the middle of a recession and after one of the worst market downfalls in history, it’s understandable that consumers are jumpy about getting a mortgage. Much of the recent increase in housing sales is coming from all-cash buyers. But we can’t have a recovery without mortgages. A mortgage you can afford—one that doesn’t cut too much into your income—is still one of the best ways to leverage your money, as I discuss in “The Art of Being Unreasonable.” Smarter lending practices will make sure that consumers, banks and the country don’t overextend themselves. We can’t have a recovery without the mortgage market getting up and running again.

Article originally appeared on Eli Broad (http://elibroad.com/).
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