Boom's Home Ownership Boost Gone

The home ownership rate, 67.2%, as of the fourth quarter of 2009, is now about the same as it was before the housing boom started around 2000.

The home ownership rate is down about two percentage points from its peak, and I most observers think it will fall further still. We have record high vacancy rates in houses and apartments, very high default rates on existing mortgages, very high levels of mortgages that are upside down, and many houses that are in foreclosure or eligible to be foreclosed upon. Children are moving in with their parents, and visa versa.

Programs designed to encourage home ownership, like the first time homebuyer's credit, turned out to be very expensive per additional home bought as a result of the credit. Most people taking advantage of the program would have bought homes anyway. This suggests just how resistant the market is to even big tax incentives to buy homes.

Homeownership increased steadily from about 64% in 1992 until its peak of about 69.2% in 2005 prior to the current crash. Before these boom years, home ownership rates stalled from 1986 to 1992 at about 64%. Before that there was a home ownership boom from 64% in 1970 to 65.8% for parts of 1979-1981, and then decling until about 1986.

I don't expect that home ownership rates will fall much below the 64% homeownership rate that has been the floor for home ownership rates for the last four decades. Even that would require six more years of falling homeownership rates at the current rate of decline.

The rise in homeownership, like the increase in the proportion of women in the work force and in particular in professional occupations, was a result of permanent changes in our society, like the rise of households where both members of a married couple work, and establishment of a lending infrastructure that makes mortgage loans with fairly modest down payments.

The result isn't necessarily bad. I've writeen before that home ownership is an economic choice rather than a sacred goal, and it often doesn't make economic sense, particularly for people with bad credit that forces them into subprime loans, and for people who are likely to need to move from job to job don't benefit from being tied down in that job search.