Tuesday, April 27, 2010

Homeownership Falls to Ten-Year Low, That's Good

According to data released yesterday by the Census Bureau, the U.S. homeownership rate fell to 67.1% in the first quarter of 2010, the lowest rate since the first quarter of 2000, exactly ten years ago (see chart above). Compared to the peak of 69.2% in the second quarter of 2004, the homeownership rate has fallen by more than two full percentage points in the last six years.

Many economists and analysts would agree that the mortgage market meltdown, housing bubble and global financial crisis resulted from the political obsession in America to increase homeownership with easy credit and government housing policies. Even the House of Representative’s
Committee on Oversight and Government Reform concluded last summer that:
The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market intended to help provide homeownership opportunities for more Americans. This intervention began with two government-backed corporations, Fannie Mae and Freddie Mac, which privatized their profits but socialized their risks, creating powerful incentives for them to act recklessly and exposing taxpayers to tremendous losses. Government intervention also created “affordable” but dangerous lending policies which encouraged lower down payments, looser underwriting standards and higher leverage. Finally, government intervention created a nexus of vested interests – politicians, lenders and lobbyists – who profited from the “affordable” housing market and acted to kill reforms. In the short run, this government intervention was successful in its stated goal – raising the national homeownership rate. However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy.
Bottom Line: Our political infatuation with homeownership turned thousands of good renters into bad homeowners and consequently turned the “American Dream” into an “American Nightmare” for many Americans. The fact that many homeowners are now returning to once again being good renters is a sign of progress, and the significant decrease in the U.S. homeownership rate to a ten-year low should be considered a very positive trend.

21 Comments:

At 4/27/2010 4:26 PM, Anonymous Benny The Man said...

"Our political infatuation with homeownership turned thousands of good renters into bad homeowners and consequently turned the “American Dream” into an “American Nightmare” for many Americans."

Agreed--except that a lot of "bad homeowners" were probably also "bad renters."

If you could fog a mirror, WaMu would give you a loan. Goldman Sachs would package it with other loans, and then sell it to some suckers.

 
At 4/27/2010 5:45 PM, Anonymous Anonymous said...

If you could fog a mirror, WaMu would give you a loan. Goldman Sachs would package it with other loans, and then sell it to some suckers.

More than 2/3 of those loans were purchased by Fannie and Freddie acting in compliance with mandates put in place by the government.

I really don't care if suckers get taken, unless the sucker is the government and I'm getting stuck with the tab.

Until there is reform/elimination of the GSE's nothing will have been done to prevent the next housing crisis.

 
At 4/27/2010 6:31 PM, Anonymous Benny The Man said...

Anon-
Agreed--and let's kill the homeowner's mortgage interest tax deduction too--probably the biggest reason why so much excess capital flows into housing in the US, instead of productive enterprises.

PS--On your two-thirds number--for what time period?

 
At 4/27/2010 7:10 PM, Blogger W.E. Heasley said...

Hence markets are in fact efficient.

If memory serves me, the historical average homeownership rate was around 65%. The Clinton Administration (the political class) decided (a notion) that homeownership was too low and should be 70% so more could have the “American dream”.

The political class, through government intervention….. and the next thing you have is 69.2% home ownership! Government intervention creates a bubble of marginal buyers. Ops! Financial crisis comes to pass. Efficient market intervention and back toward 65% we go. The marginal buyer who had no place in the housing market due to many factors, who was placed into the housing market by the political class through government intervention, has been removed. The good renter goes back to being the good renter.

How true that the political class through government intervention, based on notions, made a dream a nightmare!

So the political class through government intervention is going to pass financial regulation (more regulation) to regulate the market? No, no! The political class needs to pass a regulation to regulate the political class.

Finally, who ends up paying for the clean up? William Graham Sumner’s “Forgotten Man” gets to clean up the mess yet again.

 
At 4/27/2010 7:44 PM, Blogger PeakTrader said...

It's difficult to be a "good" homeowner when you buy a house at the top just before the crash.

A "poor" homeowner can be a "good" homeowner buying a house before it goes up in price.

Avoiding homelessness makes people good renters.

Are more good renters really a sign of "progress?"

 
At 4/27/2010 8:10 PM, Anonymous grant said...

Would houses rise in price if inflation was under control or there was very small increases.

 
At 4/27/2010 8:31 PM, Blogger PeakTrader said...

Homeowners extracted trillions of dollars in equity when housing prices rose, most likely for consumption, because the U.S. current account deficit reached over $800 billion in 2006 (or 6% of GDP).

It's amazing "taxpayers" are angry at Wall Street, when they should be angry at consumers and government (the money was consumed, and the consumption of imports shifted dollars into U.S. Treasury bonds, which were consumed by the government).

 
At 4/27/2010 9:04 PM, Blogger PeakTrader said...

Grant, excess goods slowed inflation, while excess capital raised housing prices.

Foreigners sold their goods too cheaply and lent their dollars too cheaply, creating a virtuous U.S. cycle of consumption-investment.

Also, in the 2000s, U.S. corporations had a record 20 consecutive quarters of double-digit earnings growth.

 
At 4/27/2010 9:24 PM, Blogger Ron H. said...

>"Hence markets are in fact efficient."

Mr. Heasley, you have nailed it.

>"The good renter goes back to being the good renter."

Except that the once happy good renter is now a bitter good renter because he feels that he was offered a chance at the "American Dream", but it has been snatched from his grasp.

>"The political class needs to pass a regulation to regulate the political class."

Or as T. Jefferson once said:

"...but bind him down from mischief by the chains of the Constitution."

 
At 4/27/2010 9:53 PM, Blogger Ron H. said...

>"It's amazing "taxpayers" are angry at Wall Street, when they should be angry at consumers and government (the money was consumed, and the consumption of imports shifted dollars into U.S. Treasury bonds, which were consumed by the government)."

Politicians have cleverly deflected that anger away from themselves by feigning outrage and shaking their grubby little fists at "greedy wallstreet fat cats".

Remember the bile spewed by Chris Dodd and others over those "unconscionable" AIG executive bonuses? That $165 Million amounted to 0.1% of the AIG bailout noney. Where was the outrage over the other 99.9% ?

When it was pointed out to him that as chairman of the Senate Banking Committee he had approved these bonuses, he spluttered that he had somehow been tricked into signing the documents.

One of the most powerful men in government was tricked into signing something. What a lying bozo he is! This isn't the type of person we want in such a powerful position. Luckily he has seen the handwriting on the wall, and won't run for re-election.

 
At 4/27/2010 11:09 PM, Anonymous Lyle said...

The problem starts with the real estate industry which has never seen a time that is not a good time to buy (Read its a good time for them to get their commission). Also not enough emphasis is placed on the real estate industries implicit turnover tax on real estate (commissions, title insurance, inspection fees, document fees, fee assesment fees, mailing fees, fees for the sake of having fees). Its over 10% of the sales basis on a round trip basis. (Either directly or added to the mortgage). With the mobility of people unless you have decent appreciation most will end up having to bring a check a closing to sell the place.

 
At 4/27/2010 11:38 PM, Anonymous grant said...

Maybe whats needed is a new type of home ownership and a new type of repayment system.

 
At 4/28/2010 7:56 AM, Anonymous Anonymous said...

As ususal, the people who simplistically blame this on easy credit and bad loans are taking a simplistic view of the situation.

I had an easy credit, no doc loan, done over the phone in minutes, and it was a good deal for me and the bank.

The loan is still in good standing, and a lot smaller now. And it isn't underwater.


Yes there were some giveaway loans, but quite a few would still be serviced had the owners not lost their jobs.

There is plenty of blame for this, including rating agencies, and derivative butchers, government policy, and greedy people of all categories that reached too far for an apple and fell off the ladder.

 
At 4/28/2010 7:59 AM, Anonymous Anonymous said...

New type of ownership.


Good idea. It costs too mauch and takes too long too buy a home. you can spend almost as much for a car in minutes: no surveyor required.

If it was easier to swap and move, more people would live in places better for them (closer to work, maybe).

We maked this way too hard, in some respects and way too easy in others.

Of course either fix will require government intervention.

 
At 4/28/2010 8:03 AM, Anonymous Anonymous said...

Agreed--and let's kill the homeowner's mortgage interest tax deduction too--probably the biggest reason why so much excess capital flows into housing in the US, instead of productive enterprises.

But lets keep the interest deduction for commercial rentals, right? Same as any other business expense.

 
At 4/28/2010 10:39 PM, Blogger OA said...

Anonymous said...

Agreed--and let's kill the homeowner's mortgage interest tax deduction too--probably the biggest reason why so much excess capital flows into housing in the US, instead of productive enterprises.

But lets keep the interest deduction for commercial rentals, right? Same as any other business expense.



How is home mortgage interest similar to interest on a commerical loan? It's completely different. Why are you not allowed to deduct your home utility bills and furniture from your taxes, while businesses can?

Home mortgage interest rates are already manipulated downward through government action like setting up Fannie and Freddie. Ever price a commercial real estate loan versus one for a primary residence? Why is there an additional bonus on top of that?

 
At 4/29/2010 10:11 AM, Anonymous Anonymous said...

How is home mortgage interest similar to interest on a commerical loan? It's completely different. Why are you not allowed to deduct your home utility bills and furniture from your taxes, while businesses can?

Good point. We have the mortgage interest deduction for homeowners to grant them SOME parity in costs.
The landlord (owner) has equal benefits as it stands now, because a commercial landlord doesn't pay the utility bills, the users do.
(at least I don't. Some leases have utilities included, but it is asking for trouble.)

Without the mortgage deuction, we would all be renters, even if we had to set up shams where you "own" your neighbors house and he "owns" yours.

It's a good idea though. You are in favor of lower taxes so let's get all the deductions we can. Why fight it?

 
At 4/29/2010 2:24 PM, Blogger Jim said...

WE Heasley, your argument strikes me as intentionally misleading. So too does the argument of this post - saying that the roots of this crisis begin with the GSE's and resulted from a political obsession with increased ownership is misleading, no matter how many economists or observers you find that would agree. There is a LOT more blame to share. How about a political obsession with "efficient markets," for starters?

The Republican congress, and not the Clinton Administration, achieved the goals of their long-standing "obsession" when they deregulated the banks by repealing Glass-Steagall. Because hey, markets are more efficient when they're free, right? And competition will make the banks better, right?

So when President Bush started pushing the "ownership society," not Clinton, and insisted that more and more of us "forgotten" buy into the American dream regardless of whether we could afford it, should we wonder that the GSE's responded as they did? Should we wonder that banks took advantage of the new, less restrictive environment the way they did?

We shouldn't, because this story is as old as capitalism itself. Efficient markets make a great theory, but a lousy practice. Markets do many things extremely well, but they are only as good at increasing the prosperity of the nation as the rules and regulations under which they operate. Prosperity is measured in more than just dollars and cents.

 
At 4/29/2010 4:46 PM, Blogger OA said...

Anonymous said...
Without the mortgage deuction, we would all be renters, even if we had to set up shams where you "own" your neighbors house and he "owns" yours.


Sorry, reality doesn't support your assertion. Canadians mysteriously buy houses without a mortgage interest deduction. Are they crazy for not renting?

There's a lot of value in having control over your property, and in having a fixed payment while rents increase.

You really think neighbors renting each other's houses makes sense? Try factoring in capital gains taxes on the tail end and see how it compares to living in your own house.

 
At 4/30/2010 4:18 AM, Blogger Ron H. said...

>"Without the mortgage deuction, we would all be renters, even if we had to set up shams where you "own" your neighbors house and he "owns" yours."

The IRS won't allow this type of arrangement. If the only purpose of an arrangement is tax avoidance, it will be disallowed.

 
At 4/30/2010 4:44 AM, Blogger Ron H. said...

>"- saying that the roots of this crisis begin with the GSE's and resulted from a political obsession with increased ownership is misleading, no matter how many economists or observers you find that would agree."

Jim, there are plenty of reasons for the current financial downturn, and plenty of entities to blame.

For an excellent and thorough explaination, I would recommend this excellent book by Thomas E. Woods. It is probably available at your local library

 

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