PIMCO: Millions More Homeowners Will End Up Renting

Lock, Foreclosure, Locked

Photo: Yepoka Yeebo / Business Insider

The U.S. homeownership rate may fall two percentage points to 64 per cent, below historic norms, amid about six million additional foreclosures and tight lending standards, according to Pacific Investment Management Co.’s Scott Simon.”You may be turning another 4 million homeowners into renters,” Simon, the mortgage-bond head at Newport Beach, California-based Pimco, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene.

Homeownership has declined from 69.2 per cent in 2004, the highest on record, as loose credit and soaring property values drew buyers into the market, according to the Census Bureau. While owning is now “incredibly cheap” compared with renting for consumers who can qualify for loans, relatively few Americans can take advantage of the opportunity, Simon said. The proportion of Americans owning their homes averaged 64.5 per cent in the 1970s and 1980s.

U.S. home prices are down 35 per cent from a 2006 peak, after declining in February to the lowest since 2002, according to S&P/Case-Shiller index data on value in 20 markets released today. Prices are poised to drop an additional three or four per cent before bottoming during the next 12 months, Simon said.

“We really haven’t changed our view about where this will end for two or three years,” he said. Data on new home sales, which today surpassed economists’ estimates, is essentially unimportant because activity is set to remain depressed after “about 4 million extra houses” were built during the boom, he added.

Renting Foreclosed Properties
Pimco, which runs the world’s largest bond fund, raised the mortgage holdings of its $252.5 billion Total Return Fund in March to 53 per cent, the highest share since 2009, according to data on the company’s website.

Simon said he agrees with the Federal Reserve that it would be useful to create a government lending program for buyers of foreclosed homes who plan to convert them into rentals. Fannie Mae and Freddie Mac, the government-supported mortgage companies seized in 2008, would be the logical sources of the financing, which would bring investors out in “droves,” he said.

“The problem is that Fannie and Freddie are such a lightning rod in Washington it’s very hard to use them,” he said. “You have to say you do not like them, that you have to shut them down.”

Fannie Mae is now seeking bids for bulk sales of about 2,500 foreclosed homes under a test program, its regulator said in February. The Fed suggested that the U.S consider providing financing to investors buying such blocks of properties in a January paper that Chairman Ben S. Bernanke sent to Congress. 

–Editors: John Parry, Alan Goldstein

 To contact the reporters on this story: Jody Shenn in New York at [email protected] Thomas R. Keene in New York at [email protected] 

To contact the editor responsible for this story: Alan Goldstein at [email protected]

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