NEW YORK ( TheStreet) -- Equity Residential ( EQR) and Altisource Residential ( RESI) may have similar names, but they offer two radically different approaches to investing in what some believe could be a long-term decline in U.S. home ownership. As you can see from the chart below, U.S. home ownership levels have returned to where they were in the 1990s -- roughly 65% compared to a peak of above 69% in the second quarter of 2004.
The downward trend will continue for many years, argues Bill Erbey, chairman of RESI. (I'll call it RESI instead of Altisource to avoid confusion because there are three related companies -- all run by Erbey -- that bear the Altisource name). "I'm not sure if we go all the way back to what it was pre-World War II, pre the start of Fannie Mae and Freddie Mac, which dramatically expanded homeownership, but certainly you're seeing probably half a percentage point or so of shift from ownership to rental on an annual basis," Erbey told me during one of several interviews for this exclusive profile of the little-known billionaire published last week. In case you were wondering, before the government created Fannie Mae in 1938, home ownership rates were below 50%. The fact that Erbey would even think about such a massive drop in home ownership is a signal he is predicting an economic and social shift way beyond anything anticipated by most followers of the housing industry. See this interview (separate from the profile) for more of Erbey's views on housing. Part of the rationale for Erbey's view is a belief that the ever-shrinking middle class will keep shrinking until we can retrain the U.S. workforce -- something that will take two or three generations at least. But Erbey is also concerned about more restrictive housing policy stemming from the 2010 Dodd-Frank financial reform legislation that will go into effect in 2014. He points to a CoreLogic study in February which argues only 50% of the mortgages being underwritten today will qualify under the new standards for what will be known as a Qualified Mortgage.