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Homeownership has been pushed by the past two presidents and certainly contributed to the financial meltdown that we experienced in 2008 and are still recovering from. I thought that this month’s blog should look at homeownership from where we were, to where we are and looking forward to what the future holds. Many agents have been telling me that fear is holding back buyers and, in some cases, sellers in today's market. Clients have many questions relative to the future of housing in general, as well as effecting their own situations.
If we look back in history, we note that home ownership rates averaged about 63 to 64 percent from 1965 to the early 1990’s. It was then that George W Bush started to push the goal of increased ownership and this was echoed by President Clinton. With the lax lending standards that came into play at that time, we saw ownership rates skyrocket to about 70 percent.
So where are we today? The official rate is 67.1 percent, which is still far higher than the historical average and back at levels not seen since 2001. One thing remains clear and that is that we will certainly see this rate reduce as we continue to see increasing foreclosures.
There are a number of factors, however, that suggest that homeownership rates, although headed lower and back to historic norms, should not overcorrect. These are as follows:
1. Social Policies – as mentioned above, our elected officials like homeowners as it results in neighborhood stability, as well as building equity. However, there needs to be a balance as the excess demand was driven by lax lending that cannot return.
2. General Housing Affordability – With the price declines that we have seen, housing affordability has not been better in many years. Historically low interest rates also impact affordability.
3. Aging Population – as the population ages, ownership rates increase.
4. New Households – the echo boom generation is upon us and every year there are millions of young people who fly the nest, heading out into the world and in need of shelter. This figure far exceeds households lost to death. That being said, as many know, if there are no jobs available, they are likely not to fly without considerable pushing!
So what does this mean? The likelihood of an overcorrection, assuming that lending policies by GSE’s such as Fannie Mae, Freddie Mac, and FHA do not change dramatically, is slim.
