The Home Ownership Bubble

The US goverment still, it seems, thinks that encouraging homeownership is a very good idea:

Four former secretaries of the Department of Housing and Urban Development told a packed meeting room... that just because the financial system is flawed doesn't mean the dream should die.
"The American dream is to own a home. I'm not foolish enough to believe that every person ought to own one. But if they aspire to that dream we should do everything we can to help them," said Alphonso Jackson, who stepped down as HUD secretary in April.

This is silly. With millions of Americans entering the ranks of the unemployed, with the broader economy going into a vicious recession, and with homeownership rates already at unsustainably high levels, the last thing the government should be concentrating on is pushing homeownership rates higher. Instead, it should focus on affordable housing for all Americans.

Steve Kerch's article does have one very odd assertion, though:

The homeownership rate peaked at just under 70% in the late 1990s, but has fallen off since.

If this were true, it would say a great deal about the subprime boom. But it's not true. Here's the chart, from the Census Bureau's data:

The peak of the chart, just above 69%, came between Q2 2004 and Q1 2005. In the 1990s, the rate never went higher than 67%. And this is a data series where each percentage point makes a huge difference: In a country of 100 million households, a rise of 1 percentage point means an extra 1 million homes being owned. If those homes are worth an average of $250,000, then that's $250 billion.

Right now, we're at 68% homeownership. To get back to the historical mean of 65%, some 3 million homes worth something in the region of $700 billion will have to get bought by landlords. That's going to take a while, but it's pointless trying to delay the inevitable. We're in a home ownership bubble right now, which is bursting. Let's try and concentrate on the upside -- cheaper housing -- and not try to keep that bubble artificially inflated.

Comments

[Smarty_Pants:]

If every American were to just suck it up and buy a second home we'd have home ownership over 120% in no time.

As usual Felix, you dug up the data to back up the somewhat obvious (to all but a bureaucrat) conclusions.

To save Gabe B. the trouble ... "Housing index at 20,000 by 2010."

2008 Oct 30 04:19 PM

[thedozer:]

step 1: abolish HUD...

I'm good from there... Alphonso is an ASS

to vbiershwale: 3.4 million jobs shipped overseas.... NO correlation to the corporate tax rate I'm sure!

Felix: concentrate on "cheaper housing..." see step 1

my suggestion... save then buy... just say it, save then buy...
save then buy....

or... define 'cheaper housing'

then elude as to how to earn money... which unions to join... how much of the top 2%'s salary to use for down payment...

how about concentrating on getting broadband access for all!

2008 Oct 30 04:51 PM

[Smarty_Pants:]

"how about concentrating on getting broadband access for all!" - dozer

And Free Ice Cream!! Yay! $700 Billion will buy a lot of Tutti Frutti.

2008 Oct 30 04:59 PM

[Smarty_Pants:]

"This is silly. With millions of Americans entering the ranks of the unemployed, with the broader economy going into a vicious recession, and with homeownership rates already at unsustainably high levels, the last thing the government should be concentrating on is pushing homeownership rates higher."

Felix: Are you not aware of the true power of FED blarney? It can do almost anything.

2008 Oct 30 05:02 PM

[thedozer:]

smarty...
can you stop by my government housing unit and work on my satellite tomorrow? the signal if fading in and out..

and I want to show you my new ipod touch I bought with my stimulus check

2008 Oct 30 05:07 PM

[Lars39:]

"Home Ownership"? If a person is allowed to buy a house they obviously can't afford, it is more accurately "Home Debtorship" waiting for foreclosureship.

2008 Oct 30 09:24 PM

[NickGulliford:]

Do we know the marital status of those in arrears with mortgage payments?The bubble has been created at the same time as the massive increase in cohabitation. The duration of a cohabiting relationship is likely to be much briefer than a marriage, so my guess is that we won't learn from this experiment until the facts are more fully known. We do, however, know a number of things, such as that parents are less likely to support financially offspring in cohabiting relationships.

2008 Oct 31 08:30 AM

[notsosmart:]

at least teach people that their primary house is a liability not an asset. an asset brings in money,a liability costs. pay of as fast as you can the mortgage & dont take a heloc.all the bankers & other fee hungry folks want you to pay.my house was pai in 20yrs on a 30yr mortgage.much interest saved.no heloc ever.he interest saved invested in drip plans of good co's whose dividend could be counted on.now my portfolio is down app. 40% so what. i owe no one.i have an income that exceeds my needs & i sleep well at night.dont be so easily fooled by those who want their hand in your pocket.

2008 Oct 31 10:28 AM

[Engineer:]

Good comment Lars,

Home ownership might be a bit of a misnomer - the other trend that is going on behind this graph is that increasingly, new "owners" are basically renting from the bank.

2008 Oct 31 11:22 AM

[kebu77:]

Homeowner - - free and clear

Homebuyer - - some debt

Renter - - under water

2008 Oct 31 12:40 PM

[Kunst:]

The US corporate tax rate is quite a bit lower than its nominal value due to extensive loopholes.

Jobs aren't going overseas because of corporate taxes. They are going overseas because equivalent labor costs are much lower. This is compounded by the relative failure of the American educational system.

2008 Nov 02 01:46 AM