Homeownership Down and Dropping. What Does a Nation of Renters Look Like?

Despite dropping affordability (see below) the ownership rate has fallen from 69% to 62% according to research quoted by the New York Times. Former owners are becoming renters and this may further destabilize house prices.

Renters are far less likely to upgrade their homes and participate in neighborhood improvement programs. Consequently, values fall. As values fall more mortgages become underwater and more people effectively become renters (either through foreclosure or because they owe more to the bank than what their house is worth).

Homeownership is an important part of a well-developed middle class. Homeownership enables individuals to save and accumulate assets that can benefit generations of their family. Even if the short-term financial cost of rent beats that of homeownership, the long-term benefit of an eventually mortgage-free house is huge.

For those saying that homeownership is what got us into this mess in the first place…I argue that it wasn’t homeownership, it was loose lending standards and rampant speculation that led to the housing bubble and massive excess capacity. If everyone who bought houses over the past few years were properly qualified and had some skin in the game (i.e. a decent down payment) the bubble would be far-less onerous.

On the other hand, those that are buying houses today (in an environment with tighter lending standards, cheaper housing and low mortgage rates) may be the ultimate benefactors of homeownership. Today’s low mortgage rates and cheap housing is setting up families to be debt-free much faster than in the past (and therefore have more money available for savings and discretionary spending). I have suggested several times that if a large portion of the young population exploits today’s ownership opportunity, America could have a far more stable economy in the coming decades.

NYT article