Reports of the death of homeownership are greatly exaggerated. To read the headlines and hear the cable news, you would think that efforts to provide greater opportunities for homeownership were fiendish plots to ruin America. The pendulum of opinion appears to have swung well beyond simple correction for recent excesses. Homeownership has been the housing choice for the majority of U.S. households since WWII. Home prices, sizes, locations, and types have changed but the quest to become a homeowner grew for 65 years. The share of households owning their own homes rose to almost 70 percent by 2004. That rate has fallen backward in the last several years. This article presents four observations countering the drum beat of negativism against homeownership.
Homeownership remains a priority. The recent housing market interruption has had many causes and explanations, and some long-term trends have changed since WWII. But, the demand for homeownership remains. The absolute number of homeowners stays above 75 million and is down less than 1 percent from the peak in 2006. A 2010 survey found that eight in 10 respondents consider homeownership important to the economy. Seven in 10 respondents said they believe buying a home continues to be one of the safest investments available. In contrast, only 17 percent believe buying stocks is a safe investment. Homeownership rises with age, marriage, and number of children.
Homeownership rates have fallen but recovered. Virtually all of the largest 75 metropolitan areas have seen house prices decline in the 20 years preceding the mid-2000s, and almost half saw a more than year-long decline. The slumps were often aligned with larger economic events that affected particular regions. For instance, Los Angeles experienced a 21 percent fall in house prices that ended in early 1995. Home-ownership rates peaked at 48.9 percent in 1994, fell to 46.8 percent in 1996, and recovered to 49 percent in 2000 and continued increasing into the 2000s. Dallas home prices fell almost 13 percent in the late 1980s, and homeownership rates fell 3.5 percentage points between 1990 and 1992. However, homeownership rates revived and increased to 58.7 percent in 1995 and over 60 percent through the remainder of the 1990s.
Home equity provides wealth. Home equity is a more uniformly distributed form of wealth accumulation than any other asset. And, home equity is used to expand small businesses, educate children, pay medical costs, and fund retirement. As of 2007, 53 percent of families owned retirement accounts, 18 percent owned stocks, and 69 percent owned a home. For these homeowners, home equity and household wealth is built by paying down mortgage principal and through normal increases in value. The tax benefits of homeownership, including the mortgage interest deduction, are also beneficial, particularly for recent, younger home buyers, who pay more interest as a share of income. So while renting remains an important option for younger or more mobile households, homeownership is an engine of wealth creation for most households.
Homeownership generates social benefits. Research studies in economics and other disciplines have shown homeownership increases civic participation, improves childhood outcomes, and increases the value of close-by properties. These social benefits of homeownership spill over and improve the economic and social conditions of neighborhoods with concentrations of homeowners. Homeowner property taxes are the primary revenue source for most local governments, and finance schools and other local services.
Over enthusiasm and faith in continued double-digit housing appreciation fed the housing boom until bad decisions on the part of buyers, lenders, investors, and raters brought the party to an end. But recent discussion questioning the benefits of homeownership is exaggerated and at odds with the facts positioning homeownership’s central place in our society. It would be a mistake to conclude otherwise.