Homeownership Declines as Prices Continue to Fall

Posted by Jim DeBellis on May 31st, 2011

It is universally expected that today’s housing index report will confirm the double-dip recession in the housing market when housing prices officially fall below the bottom of March, 2009. It seems that the government’s zeal to give more people the American Dream of homeownership has backfired, leading the nation instead from Generation X and Y to “Generation Rent.”

The falling prices are a sign of falling homeownership, which will soon dip to levels of the mid-1960s. Of course, the downward trend is fueled by lingering high unemployment, a rising inventory of foreclosures and underwater mortgages, a sluggish general and global economy, a distressed dollar – and the people’s unwillingness or inability to buy.

One executive for a real estate search engine is quoted in the New York Times as saying, “The emotional scars left by the collapse are changing the American psyche” and eliminating our former pride of ownership. Economic trends are often based on levels of fear or confidence. Some compare today’s turmoil to the late Carter and early Reagan years – and the eventual turnaround then was complete and and quite remarkable.

Of course there are differences. One difference is that the government is doing pretty much the exact opposite to fix the problem this time, getting more involved in the “cure” instead of getting out of the way. And, of course, our national debt was just reaching $1 trillion then, whereas now it is more than $14 trillion and poised to become larger than our GDP very soon.

American spending has saved us many times in the past. First it was government spending, as when World War II defense spending helped pull us out of the Great Depression. By the 1980s it was private consumer spending and credit card debt that helped us through. At the turn of the millennium, when Clinton cut government spending and gave us a surplus, it was home equity loans and rising home values that kept us going. Oops. With no piggy banks left to rob, this might be the time that we really have to pay the piper.