Looking at the last 10 years the home ownship rate climbed by 2 percent and resulted in a 4.5% annual gain. An inflation adjusted 4.5% return is a fairly significant, but should prompt the pyramid scheme protection question of "Is this sustainable?" and "What is the driver?".

Consumers only have a fixed amount (capacity) of income. As mortgage rates climb, housing prices should fail and as mortgage rates fall, housing prices should rise. Thus mortgage rate have a significant impact on housing prices. However, the inflation adjusted numbers discussed above should not be significantly impacted by inflation. So what factor has increased the demand (price) for houses? Blame creative financing by the housing industry for causing people to borrow beyond their capacity.

The real-estate agents, home builders, and mortgate lenders are benefit by increasing the demand for homes. Governments receive higher real-estate assessment income as home demand rises. So why would anyone involved in home sales try to prevent (1) renters from buying, (2) owners from moving up and (3) investers from flipping homes? The homeowner is at the bottom of this pyramid scheme and the homeowner with a creative mortgate is at risk because the owner lacks capacity to handle mortgate rate increases. The situation becomes extremely risky if the homeowner's income depends upon the housing market's construction and sales industry.

Rational people should have seen this train wreck. The housing market's creative financing targets people with the least capacity to invest. Home ownership rates also rose before the great depression. Mankind's greed and ignorance seems to drive blind optimism.

For the same house, a consumer should expect to pay a similar price for shelter. In actuality, a renter should pay a little more than the homeowner to cover expenses (repairs, maintenance, commissions, fees, vacancies, evictions, legal, occupancy permits, taxes, ...) and reasonable landlord investment returns. As a rule of thumb, monthly rents should represent 1 percent of the home price. For a medium home price of nearly $238,000 in 2006, a landlord should rent the home for about $2,400. However, with a medium income of $45,000 in the US, spending nearly $30,000 for rent is unreasonable. Rents are not this high and for this reason, available rental units decline. Current rental rates are a clear indicator that CONSUMER housing prices are too high.

From a housing consumer's perspective, it is a good time to be a renter. From a landlord's perspective, it is a bad time to be renting!