Aug032016

U.S. homeownership rate plummets to five-decade low

Despite legislators and bureaucrats best efforts, the homeownership rate continues to slide.

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Since the Great Depression, presidential administrations with a cooperative Congress implemented policies intended to maximize the homeownership rate. At the end of World War II, the returning servicemen armed with FHA loans bought millions of new production homes and raised the homeownership rate significantly from the bottom of the depression. Apparently, the new policies were a success.

However, the early success was not matched by future increases in home ownership. Once the stimulus provided by FHA loans reached a new equilibrium, the home ownership rate stabilized at about 64% and remained there for about 40 years — despite ongoing tinkering with financing and other policies.

During the mid 1990s, subprime lending gained market share, and as subprime lending grew, the homeownership rate rose steadily. The growth of subprime lending was not government policy, nor was it a reaction to government policy as the political right often suggests. The growth of subprime was private-sector lending seeking a return on investment.

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During the early 00s, on the surface conditions looked great. House prices were appreciating rapidly, mortgage equity withdrawal was fueling an economic boom, subprime lending was providing home ownership opportunities to everyone, and the American Dream was being recognized by a record number of Americans.

For government officials, this was touted as the success of their policies (even though government policy had nothing to do with it). Critics of these policies were mocked or widely ignored as the ravings of madmen, particularly those who believed subprime and “innovative” lending of the age was unstable and could potentially lead to a painful crash.

Unfortunately, homeownership is not right for everyone. Many Americans are better served by the freedom of movement that accompanies renting; young people in particular may want to move for career advancement.

Many Americans lack the financial management skills necessary to sustain homeownership, and it’s necessary to exclude those who lack these skills because if homeownership is granted to those unable to sustain it, the result is a heart-wrenching price crash and 6.5 million foreclosures.

During the housing boom, everyone was able to ignore the reality that homeownership is a privilege and not a right. Everyone considered themselves a homeowner, even those who didn’t pay for their houses.

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Declines in the home ownership rate were inevitable when the housing bubble popped. Foreclosures pushed people out of their homes and into rentals at an unprecedented rate. While policymakers have managed to manipulate supply to cause a rise in home prices, the home ownership rate continues to slide.

U.S. Homeownership Rate Falls to Five-Decade Low

But household formation climbs as more Americans look to rent

By Jeffrey Sparshott, Jul 28, 2016

The U.S. homeownership rate fell to the lowest level in more than 50 years in the second quarter of 2016, a reflection of the lingering effects of the housing bust, financial hurdles to buying and shifting demographics across the country.

But the bigger picture also suggests more Americans are gaining the confidence to strike out on their own, albeit as renters rather than buyers.

The decline in home ownership rates may also reflect a generational shift in attitudes toward home ownership. I believe the current generation won’t have the unbridled enthusiasm of the previous generation — thankfully — and they will be more cautious about buying, which is a natural reaction to the carnage they witnessed, but ownership is primal, and no matter how bad lenders and government officials screw everything up, people will still want to own if it’s advantageous for them to do so, and probably even if it’s not.

The homeownership rate, the proportion of households that are owner-occupied, fell to 62.9%, half a percentage point lower than the second quarter of 2015 and 0.6 percentage point lower than the first quarter 2016, the Census Bureau said on Thursday. That was the lowest figure since 1965.

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There are many ways to interpret the numbers. Part of the story is the catastrophic housing market collapse, which was especially severe for Generation X—those born from 1965 to 1984.

(See: Which generation was hurt the most by the housing bust?)

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Younger households may struggle to save amid student debt, growing rents, rising home prices and limited inventories of starter homes. Indeed, the homeownership rate for 18- to 35-year-olds slipped to 34.1%, the lowest level in records dating to 1994.

At 77.9%, the homeownership rate was highest for those 65 years and over.

But the broader picture suggests a degree of economic strength: Renters are spurring a steady increase in overall household formation. Renter-occupied housing units jumped by 967,000 from the same period a year earlier. Overall, household formation has been fairly steady since the early days of the expansion.

A rising number of households suggests more people are optimistic enough to strike out on their own and helps further spur growth as they buy furniture, start families and move up the economic ladder.

Indeed, moving into a rental unit has been entirely responsible for rising household formation since the recession began.

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“Household formation numbers suggest that if the decline [in ownership] is real, it is more likely due to a large increase in the number of renter households than any real decline in the number of homeowner households,” said Ralph McLaughlin, chief economist at real estate website Trulia.

The failure of housing policy

Legislators and bureaucrats who craft US government housing policy want to increase in resale value of houses and maximize the home ownership rate. Middle-class family can make, and home ownership is synonymous with the American Dream.

Housing subsidies are detrimental to America. Evidence of this epic failure is the collapse in home prices and the resulting 8-year economic malaise caused by the withdrawal of the HELOC abuse stimulus from the American economy. Now we can show their failure was complete as the home ownership rate hits a 50-year low.

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