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The ‘Dream’ Of Homeownership

Back on December 16, 2003, President Bush talked about the importance of homeownership to the national interest:

This Administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country.

Shortly thereafter, homeownership would reach a record level in the United States as a result of the latest housing boom. However, you cannot have a boom without a bust. I just got done reading the latest housing reports. Let’s just say they remind me of an old high school cheer that went, “U-G-L-Y, you ain’t got no alibi, you ugly, you you, you ugly.” Earlier today the latest updates to the S&P/Case-Shiller Home Price Indices were released by Standard & Poor’s. According to the S&P press release, the data (current through November 2007) showed “broadbased declines in the prices of existing single family homes across the United States, marking the 11th consecutive month of negative annual returns and a full two years of decelerating returns.” The S&P/Case-Shiller Composite of 10 Home Price Index (10 metro areas) showed an annual decline of 8.4%, a new record low. The S&P/Case-Shiller Composite of 20 Home Price Index (20 metro areas) declined 7.7% year-over-year in November. According to Robert J. Shiller, Chief Economist at MacroMarkets LLC:

We reached another grim milestone in the housing market in November. Not only did the 10-City Composite post another record low in its annual growth rate, but 13 of the 20 metro areas, each with data back to 1991, did the same.

Seven U.S. metro areas are now reporting double-digit annual declines. The list includes:
• Miami, -15.1%
• San Diego, -13.4%
• Las Vegas, -13.2%
• Detroit, -13.0%
• Phoenix, -12.9%
• Tampa, -12.6%
• Los Angeles, -11.9%

According to MarketWatch today, Joshua Shapiro, chief economist for MFR Inc., wrote:

With supply overhang enormous and mortgage financing tougher to obtain, home prices are going to decline considerably further in the quarters ahead, most likely to a double-digit pace on a year-over-year basis before too long.

The S&P/Case-Shiller indices, which track multiple sales of the same homes, are considered by many observers to be the best gauges of national and metropolitan-area real-estate values.

As home values go down in the United States, foreclosures continue to rise. Earlier today, the real-estate tracking company RealtyTrac reported that the number of homes that slipped into some stage of foreclosure in 2007 was 79% higher than in the previous year. In 2007, almost 1.3 million homes received foreclosure-related warnings, up from 717,522 in 2006. Foreclosure filings numbered 2.2 million, up 75% from 2006. Last year, more than 1% of all U.S. households were in some phase of the foreclosure process, up from about 1/2% in 2006. Nevada, Florida, Michigan and California posted the highest foreclosure rates, according to the California-based firm. RealtyTrac also noted a late-year surge in the number of properties reporting foreclosure filings, which they interpreted as meaning many are in the initial stages of the foreclosure process, and who could end up lost to foreclosure in 2008 unless lenders or the government step in. Rick Sharga, RealtyTrac’s vice president of marketing, told the Associated Press today that, “It does appear that we’re seeing a new batch of properties enter the process.” However, he also noted that recent efforts by the government and mortgage lenders to at-risk homeowners have only had a marginal impact on the foreclosure rate so far. In December 2007 alone, foreclosure filings soared 97% year-over-year. The 215,749 filings last month meant that it was the fifth consecutive month where foreclosure filings topped more than 200,000. Other states in the 2007 foreclosure “Top 10” were Colorado, Ohio, Georgia, Arizona, Illinois, and Indiana.

It’s only natural that as foreclosures rise across the United States, the level of homeownership would suffer as well. On Tuesday, the Census Bureau reported the biggest one-year drop in the rate of homeownership on record. The Bureau report showed that homeowners accounted for 67.8% of occupied homes in the fourth quarter of 2007, which is down 1.1% from a year earlier. Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), told CNN Money today:

It’s an incredible story. We’re back to where we were in 2002, which is before the subprime nuttiness and run-up in prices. And it’s not clear how much farther we’re going to fall.

Homeownership rates, which have been tracked since 1965, hit a record high of 69.2% in the second and fourth quarters of 2004.

CNN Money reported that a record 2.18 million homes sat vacant and available for sale in the fourth quarter, up from 2.1 million a year earlier. This matched the previous record set in the first three months of 2007. The report showed that 2.8% of homes not in the rental market now sit vacant, also matching the record high from Q1 2006. CNBC’s real estate reporter Diana Olick had this to say about homeownership levels on her blog today:

President Bush, as I recall, touted that record rate in his mantra of an “ownership society.” Oh well. I’m guessing the current gang of Presidential wannabes will jump all over this one.

But what really gets me in this report released today from the U.S. Census is the little-reported homeowner vacancy rate. It’s up at 2.8 percent, which is a full percentage point above where it was 2 years ago. There are currently close to 18 million vacant homes stretched across this country, a full million more than just a year ago. The bulk of the increase, of course, is in foreclosed homes.

Think about it–more and more empty houses in neighborhoods across America, as the home ownership rate continues to fall. Where’s the “American Dream” hiding in all that?

Did anyone ever stop and think why it is we equate homeownership with a “dream” in the first place? The reality is, in our society some are meant to be homeowners, while others are meant to be renters. Period. Consider the following from James Truslow Adams in his book The Epic of America from 1931:

The American Dream is “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

By the way, this was the first time the term “American Dream” was ever used. As it was at the beginning of this great nation, the same rings true today. Homeownership is something to aspire to, and not an entitlement. “With opportunity for each according to ability or achievement.” No matter what the White House or any other self-interested party may lead you to believe.