Boom's Home-Ownership Gains Lost

By DAWN WOTAPKA

The meltdown of the U.S. mortgage market and rising foreclosures have wiped out more homeowners than were created in the 2000-07 housing boom, some industry watchers say, the latest indication of the severity of the housing bust.

In the fourth quarter of 2010, 66.5% of Americans owned homes, down from 67.2% a year earlier and the lowest rate since the end of 1998, according the Census Bureau. During the boom, when easy credit made mortgages available with less regard for income or ability to pay, the ownership rate surged to a record 69.2% in 2004's second and fourth quarters and stayed near that level until the recession deepened.

Some industry watchers expect the rate to slip below 65% as the housing market meltdown forces millions more Americans to give up their homes.

That "shows how big the bubble was and how catastrophic the bursting has been," said Paul Dales, senior U.S. economist with Capital Economics. "We have pretty much reversed all of the increases in the home-owner rate generated by the housing boom."

The nation's homeownership rate gained 0.8 percentage points from 2000 to 2007, but has lost 1.3 percentage points since 2007, erasing the boom's gains, said Stephen East, a Ticonderoga Securities housing analyst.

The first wave of trouble struck several years ago as borrowers took out so-called subprime mortgages with low interest rates that later reset, often with much higher payments that they couldn't afford. The problem spread as the recession led to high unemployment. Now, as declining real-estate values leave many borrowers owning more than their homes are worth, more Americans are simply walking away.

The changes in the market are taking a toll on minority ownership. Just 44.8% of black-only households were homeowners in the fourth quarter of 2010, down from 46% a year earlier. The rate for Hispanics also fell, to 46.8% from 48.4%, the Census showed. The rate for white, non-Hispanic households slipped to 74.2%, from 74.5%.

The downturn is most pronounced in the West, which was dramatically overbuilt during the market boom and continues to see high foreclosure rates. It registered the nation's lowest ownership rate, at 61%, down from 62.3% a year earlier. The Midwest had the highest percentage of homeowners among regions, but it also saw a year-over-year decline, to 70.5% from 71.3%.

The vacancy rate for rental housing fell to 9.4%, from 10.7% a year earlier. Housing experts say each 1% decline in the home-ownership rate represents the movement of one million households to rentals.

With demand expected to surge, developers are ramping up apartment construction. CoStar Group, a commercial real-estate data and analysis provider, expects about 23,000 multifamily units to be completed this year, followed by nearly 95,000 in 2012 and more than 109,000 in 2013.

"Americans are going through a fundamental transition in the way they look at rental housing," said Greg Kraus, senior director of acquisitions with Invesco Real Estate, which has spent more than $1 billion on apartment communities in the last 15 months. "Historically, there's almost been a subtle disdain in many markets if you're a renter. That stigma is going to go away."