The Homeownership Bubble

The US goverment still, it seems, thinks that encouraging homeownership is a very good idea:

Four former secretaries of the Department of Housing and Urban Development told a packed meeting room... that just because the financial system is flawed doesn't mean the dream should die.
"The American dream is to own a home. I'm not foolish enough to believe that every person ought to own one. But if they aspire to that dream we should do everything we can to help them," said Alphonso Jackson, who stepped down as HUD secretary in April.

This is silly. With millions of Americans entering the ranks of the unemployed, with the broader economy going into a vicious recession, and with homeownership rates already at unsustainably high levels, the last thing the government should be concentrating on is pushing homeownership rates higher. Instead, it should focus on affordable housing for all Americans.

Steve Kerch's article does have one very odd assertion, though:

The homeownership rate peaked at just under 70% in the late 1990s, but has fallen off since.

If this were true, it would say a great deal about the subprime boom. But it's not true. Here's the chart, from the Census Bureau's data:

The peak of the chart, just above 69%, came between Q2 2004 and Q1 2005. In the 1990s, the rate never went higher than 67%. And this is a data series where each percentage point makes a huge difference: in a country of 100 million households, a rise of 1 percentage point means an extra 1 million homes being owned. If those homes are worth an average of $250,000, then that's $250 billion.

Right now, we're at 68% homeownership. To get back to the historical mean of 65%, some 3 million homes worth something in the region of $700 billion will have to get bought by landlords. That's going to take a while, but it's pointless trying to delay the inevitable. We're in a homeownership bubble right now, which is bursting. Let's try and concentrate on the upside -- cheaper housing -- and not try to keep that bubble artificially inflated.