Monday, April 30, 2012

Homeownership Rate Falls to a 16-Year Low in Q1 as "Homeownership Bubble" Continues to Deflate

The homeownership rate in the U.S. fell in the first quarter of 2012 to 65.4% (see chart above), according to data released today by the Census Bureau.  That was the lowest homeownership rate in 16 years, since the 65.1% rate in the first quarter of 1996, and it looks like it will probably continue falling in the future.  

Conclusion: The political obsession with homeownership starting in the mid-1990s raised the homeownership rate from below 64% in 1994 to an artificial level above 69% by 2004, but failed in the long run to create a homeownership rate that was sustainable in the long run.  In the process, government policy turned good renters into bad homeowners, created a housing bubble, waves of foreclosures, and a subsequent housing meltdown and financial crisis. In other words, the chart illustrates how government policies (monetary, mortgage market, GSEs, CRA, affordable housing, etc.) created an unsustainable "homeownership bubble" that continues to deflate.  

Update: The Census also reported today that the "rental vacancy rate" fell to a decade-low level of 8.8% in March, the lowest vacancy rate since 2002.  This is further evidence that large sections of the U.S. population are moving away from owning a home and towards renting, as the U.S. becomes more and more of a "Rental Nation." 

18 Comments:

At 4/30/2012 2:45 PM, Blogger Its GSATT said...

so is this an example of when the gov. should have stayed seated with its mouth shut?

I think I'll add this to my list of failed government ideas.

Which implodes next, student loans or health care.....

 
At 4/30/2012 3:09 PM, Blogger Moe said...

The Government should have stayed out - no question!!. But I would not say the banks were wide-eyed innocent bystanders to the great hordes seeking homeownership. The dollar signs in their eyes got pretty big.

 
At 4/30/2012 3:11 PM, Blogger Jon Murphy said...

But I would not say the banks were wide-eyed innocent bystanders to the great hordes seeking homeownership. The dollar signs in their eyes got pretty big.

You're GD right, Moe.

 
At 4/30/2012 3:21 PM, Blogger kmg said...

Meh.... a compressed y-axis makes this chart seem more dramatic than it is.

But note that the composition of housing demand is changing, since more and more young men are declining to marry and form families (due to unfair laws they would come under).

Thus, apartment demand could rise more even as single-family homes continue to decline.

 
At 4/30/2012 3:24 PM, Blogger kmg said...

Which implodes next, student loans or health care.....

Heh - note that the question is not 'if', but rather 'which first?'.

Note that both healthcare and education are women-dominated sectors, which means they are the most government distorted sectors. This is not a coincidence, but might as well be a basic law of science given how guaranteed the correlation is.

 
At 4/30/2012 3:24 PM, Blogger Larry G said...

clearly, when the local bank sells a mortgage which is then sliced and diced into a supposed AAA investment...I do not believe the govt suggested that the mortgage companies do that. It was the mortgage industry's own creation.

they turned mortgages into derivatives.

bad strategy.... blame the govt for going along.... but not inventing it...

 
At 4/30/2012 3:30 PM, Blogger Larry G said...

re: college tuition loans -

yes THIS IS a govt problem caused by the govt subsidizing loans ....

and that includes military education benefits also.

Both traditional bricks&mortar schools as well as "for-profit" schools are more than happy to sell you a diploma for 20, 30, 40K or more as long as the govt fronts the money.

Ed loans are now higher than car loans and general consumer credit card debt.

but it won't end up like mortgages..there are no "assets" to argue over...

 
At 4/30/2012 4:01 PM, Blogger Its GSATT said...

But I would not say the banks were wide-eyed innocent bystanders to the great hordes seeking homeownership

Couldn't agree more , but them banks are run by people who are seeking money. Giving them the green light to give away loans and make money is like giving the dog his whole bag of food and expecting them to ration it. HAAAA

The gov. took all the risk out of making those loans. Would you really pass on the black jack table if the risk was not there? These guys are not running charities.

 
At 4/30/2012 4:05 PM, Blogger Methinks said...

I wonder, Moe, how eager those banks would have been if they weren't able to sell those mortgages to, say, Fan and Fred.

If you force taxpayers to backstop the bad loans, of course the banks will make them.

Take away the subsidies and let's see how eager they are to roll the dice.

 
At 4/30/2012 4:10 PM, Blogger Benjamin said...

I am not sure there is a "natural rate" of homeownership, but it look alike we are back at historical norms---yet another signal housing has bottomed.

Funny, how come no one ever rails against the homeowner mortgage tax deduction?

 
At 4/30/2012 4:16 PM, Blogger Larry G said...

re: fannie/freddie

it was not Fannie/Freddie that got caught holding the Credit Default though...

Fannie/Freddie facilitated but in the end it was the big financial houses on Wall Street that held the derivatives...

My question is why would those Wall Street Banks buy those sub-prime derivatives to start with when they KNEW they were not investment grade.

 
At 4/30/2012 4:20 PM, Blogger Larry G said...

re: the mortgage deduction

I agree with Benj...

if the mortgage deduction was limited to ONE owner-occupied home AND CAPPED at median home price - there would have been much less incentive.

The fact that you could write off the interest no matter what was, IMHO a significant incentive to engage in risky behavior.

How many "hot" properties would have been bought if they had to be primary residences and capped at median home prices for basic housing?

 
At 4/30/2012 4:24 PM, Blogger Ed R said...

Why is homeownership a "political obsession"?

 
At 4/30/2012 4:28 PM, Blogger Its GSATT said...

KMG "Note that both healthcare and education are women-dominated sectors, which means they are the most government distorted sectors. This is not a coincidence, but might as well be a basic law of science given how guaranteed the correlation is"

I wouldn't go the woman route, I would say wimps or humanitarian. It just so happens women tend to be wimps and overly humanitarian. emphasis on tend(There are some very well minded women out there, but there are twice as many that cry because they ran over a squirrel). Education and healthcare are ASSUMED very very very very crucial to human existence. ever since way way way long ago...... in the 20th century.

 
At 4/30/2012 4:37 PM, Blogger Its GSATT said...

yeah the compressed y-axis does make it look a little extreme. What set up the boom that lead to that peak around 1980? Was that natural, or government steroids? I wasn't born yet...

 
At 4/30/2012 4:37 PM, Blogger Paul said...

Benji,

"Funny, how come no one ever rails against the homeowner mortgage tax deduction?"

Yeah, "nobody." Just Benji, the lone voice in the wilderness.

 
At 4/30/2012 4:42 PM, Blogger Its GSATT said...

Oh and renting is very much rising. Its a very competitive task to try and rent a house. Apartment is easier but families are preferring to move into those houses people are renting that they couldn't sell (or bought forclosed) But this would be a norm as I assume more people were renting in the 90's(hence the reason for the subsidized mortgages)?

 
At 4/30/2012 4:54 PM, Blogger Methinks said...

Bunny, the natural rate is probably much lower than that. The 30 year fixed rate mortgage is a government creation. Before that, loans to buy homes were something like five or seven years because who the hell wants to lend to anyone for 30 year? That's very risky.

 

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