Homeownership in the U.S. dropped for a fourth consecutive quarter, the longest decline in more than 25 years, suggesting more Americans will miss their best chance of building wealth.
The proportion of households that own their residences fell to 68.1 percent in the third quarter, which ended Sept. 30. That was down from 68.3 percent in the second quarter, according to a report yesterday from the U.S. Census Bureau, whose comparable records go back to 1981.
The homeownership rate has been declining from a peak in 2004, which capped a decade of gains fueled by easier lending standards and rising home purchases by immigrants and younger households.
"Owning a home in this country has been a principal source of wealth creation for low- and moderate-income people," said Nicolas P. Retsinas, director of Harvard University's Joint Center for Housing Studies. "In the absence of home equity, families will inevitably spend less."
Homeowners accumulate wealth faster than renters, with median net wealth for owners at $184,400 in 2004, compared with only $4,000 for renters, according to Federal Reserve figures.
The ownership rate reached a record 69.3 percent of households in 2004, up from 64 percent a decade earlier. With home prices soaring, net household wealth nearly doubled to $51.8 trillion at the end of 2005 from $27.6 trillion in 1995, with real estate accounting for 47 percent of the change, according to Federal Reserve data.
A study in September by the Federal Reserve Bank of Atlanta found that as much as 70 percent of the increase in the aggregate homeownership rate over the decade was due to the introduction of new mortgage products, including second mortgages. Demographics, including the rapidly growing immigrant population, also figured prominently in the increase, the study said.
Declining ownership rates mean fewer Americans will be able to tap housing equity to finance education, vacations and other spending. In the past year, the proportion of American households owning their homes dropped by 0.8 percentage point, the biggest year-over-year decline since 1981-1982.
Lower ownership rates could also signal further declines in new-home sales and construction, hindering economic growth, said Jan Hatzius, chief economist at Goldman Sachs Group Inc. in New York.
Slowing residential construction has detracted from growth in the gross domestic product for the past six quarters through June.
"If homeownership declines significantly, the implications for new-home sales could be dramatic," said Hatzius. With further weakness in sales, "the drag from new-home building on GDP growth will last longer than most people have in their forecasts, perhaps, if things go badly, into 2009."
The census bureau report also found that a record 17.9 million U.S. homes stood empty in the third quarter as lenders took possession of a growing number of properties in foreclosure.
The figure is a 7.8 percent gain from the third quarter of 2006, when 16.6 million properties were vacant, the bureau said. About 2.07 million empty homes were for sale, compared with 1.94 million a year earlier, the report said.
Sales of new homes declined 45 percent to an annual pace of 770,000 units in September, from a peak of 1.389 million in July 2005.
With inventories of unsold homes piling up near record levels, housing prices will have to fall further, economists say.
Hatzius and others argue that declining home prices leave Americans feeling less wealthy and less likely to spend on big-ticket items.
"In periods of easy credit, it was easy to take a second mortgage out and use the money to finance discretionary spending," said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York.
Harder to refinance
Second mortgages, along with interest-only, payment-option and other unconventional mortgage products, have largely dried up this year as subprime defaults mounted and lenders such as American Home Mortgage Investment Corp. closed their doors. That makes it harder for people to refinance adjustable-rate mortgages (ARMs) before they reset at higher rates.
New loans denied
"So many mortgages with ARMs are resetting and most people can't make their payments," said Steve Hawkins, a real estate agent at Re/Max Inc. in Alexandria, Va.
"And with the new criteria, they can't get loans" to refinance their mortgages, Hawkins said.
The volume of mortgages issued this year will fall to the lowest since 2000, the Mortgage Bankers Association forecast this month.