Thursday, October 02, 2008

Homeownership vs. 'Homeownership'

The US government has a goal to increase the rate of homeownership as it is seen as part of the American dream. Home owners are believed to take better care of their homes and have a greater commitment to their community.

But, there are two ways to measure homeownership. The 'homeownership' rate looks at the percentage of people who own a title to the house they are living in. I put 'homeownership' in quotes because while the name on the title of the house is the owners, the bank that wrote the mortgage also owns part, and in many cases the majority, of the home.

The second (and my preferred) way to measure the homeownership rate is the amount of the house that belongs to the individual (equity) and the amount that belongs to the bank (mortgage debt). If you purchase a home with zero down, you really don't own any of the home, the bank owns the whole thing.

Wikipedia and the NY Times provide graphs of how 'homeownership' and homeownership have changed in the last 50 years.

While 'homeownership' increased from 64% to 69% from 1995 to 2005, homeownership went in the opposite direction from 60% to 52% (best guess looking at the graph). The decrease in homeownership actually began in the late 1980s with the explosion of home equity loans.

Calculated Risk reports that 8.2 million homeowners owed more on their houses then they were worth at the end of 2007 and estimates 15.4 million will be in that situation at the end of 2008. While these people are 'homeowners' they certainly aren't homeowners.

The US government would be better served by focusing on increasing homeownership rather than 'homeownership'.

More home ownership graphs available at Calculated Risk and statistics at Danter.

Update: Paul Krugman has a nice Op-Ed on the case against homeownership.

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