The "Homeownership Bubble" is Still Deflating

The Census Bureau reported yesterday that the homeownership rate in the U.S. fell to 65.9% in the second quarter of 2011 (see chart).  That’s the lowest homeownership rate in slightly more than 13 years, since the 66.4% rate in QIV of 1997.  Compared to the all-time peak of 69.2% in 2004, America’s homeownership rate has now fallen by more than three percentage points.

The chart above also displays inflation-adjusted house prices, using the Federal Housing Finance Agency house price index. After several decades of relative stability in real home prices (index stable around 280) and homeownership rates (between 64-65%) between 1975 and 1995, both series rose over the next decade to unprecedented record-high levels. By 2004, the homeownership rate had risen to 69.2% from 64% in 1994, and real home prices appreciated by more than 50% between 1996 and 2006.

That huge run-up in home prices created an unsustainable real estate bubble that started crashing in 2007, leading to a 22% drop in home prices through the first half of this year and bringing real home prices back to their 2001 levels. Likewise, the unsustainable “homeownership bubble” started crashing in 2007 and homeownership rates are now below 66% for the first time since the late 1990s.

Read more here at The Enterprise Blog.