Home ownership lowest in a decade

According to US Census Bureau data, the homeownership rate dipped in Q409, bringing the rate of homeowners at its lowest point since the second quarter of the year 2000. The Q409 rate of 67.2% is down slightly from Q309’s rate of 67.6%, and is also down from Q408, when the homeownership rate was 67.5%. Seasonally adjusted, the Q409 rate was 67.3%, down from the seasonally adjusted rate of 67.4% in Q309 and 67.6% in Q408. The seasonally adjusted homeownership rate is also at its lowest level since Q200. Regionally, The biggest drop was in the South, where the rate declined to 69.1% from 69.7% in Q309 and 69.8% in Q408. The West declined to 62.3% from 62.7% in both Q309 and Q408. Homeownership in the Midwest decreased to 71.3% from 71.6% in Q309 and 71.4% in Q408. In the Northeast, homeownership declined to 63.9% from 64% in both Q309 and Q408.

Housing prices to drop 5% more?

In normal times, people won't pay much less to lease a house than to own it. After all, if you're paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room, chef's kitchen, and casita for visiting grandparents. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That's precisely what happened during the last bubble. And the surest sign that prices have fully adjusted arrives when the ratio of what people pay in rent versus what owners spend on the same property returns to its historic average. "If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure," says Yale economist Robert Shiller. In recent reports, Deutsche Bank (DB) demonstrates how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That's a golden mean that America hasn't seen in almost a decade. Th
e DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.

On average, DB found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one. But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages from 1999 to 2007, apartment rents increased only 32%, but home prices jumped more than three times as fast, around 105%. DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning. Given that analysis, it's likely that prices will fall another 5% or so nationwide. The drop could even be slightly greater. One reason: Rents, the force that govern housing prices, are still falling. In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.