Wednesday, October 12, 2011

Home Ownership Decline Resembles Great Depression

The recent decline in home ownership rates is probably already the largest in U.S. history, and it is expected to continue for the next five to ten years.

The Census Bureau reported last week that home ownership rates in 2010 were 1.1 percent lower in 2010 than in 2000, but in between, there was a run-up of more than 3 percent to a peak in 2004 or possibly early in 2005. This means there was more than a 4 percent decline from 2004 to 2010, and with historically high foreclosure rates, home ownership has continued to decline.

The decline is not expected to stop until around 2020, as large number of homeowners elect not to buy or, with tighter lending, fail to qualify for a mortgage on their next move, and as households nearing retirement steer away from the responsibilities and financial risk of home ownership.

In the Great Depression, the home ownership rate declined slightly more than 4 percent from its peak. The current decline in home ownership, then, probably passed the Great Depression at some point late last year, to become the largest decline in home ownership in U.S. history.

The Census Bureau also reported surprisingly high vacancy rates in 2010, with nearly 1 out of 8 residential units vacant, which I have to imagine is the highest rate the United States has ever seen. It is important to note that vacation homes are usually counted as vacant in April when the Census Bureau does its count. However, it is clear that an unusually high number of housing units are owned by banks and investors.