Homeownership reached a record high in 2004 of nearly 70 percent, parallel to home sales approaching all-time record highs. Homebuying was such a popular sport that one in 10 U.S. residents owns a second home.
What a difference a recession makes.
By December 2007, homeownership was down to 67.8 percent, the largest year-over-year drop since 1965, when the Census Bureau first began keeping track. Simultaneously, the new home sales and existing home prices made record drops.
One reason is the mortgage meltdown, caused by rising interest rates following years of unbridled lending to subprime borrowers. Realtytrac, an online foreclosure marketplace, said foreclosure filings grew 75% year-over-year in 2007 to 2.2 million. More than one percent of all households were in some stage of the foreclosure process.
Not surprisingly, there were about 2.18 million empty homes for sale in the fourth quarter, up slightly from 2.1 million a year ago.
Consumer confidence is down, according to the Consumer Confidence Index to 87.9, down from 90.6 in December. They're worried about the job market and housing, and are curbing their spending, says the Conference Board. Consumers are responsible for nearly 3/4ths of gross domestic product.
Dr. Susan M. Wachter, professor of real estate and finance for the University of Pennsylvania's Wharton School, suggests that people are wising up.
In an index she founded, adjustable-rate mortgage applications dropped nearly 40 percent from January 2007 to January 2008. Applications for fixed-rate loans climbed over 60 percent. The number of borrowers using private mortgage insurance jumped 41 percent in the first nine months of 2007, a trend that is expected to continue as mortgage insurance premiums are now tax deductible through 2010.
Dr. Wachter suggests that the appetite for risk is gone. In a less risky environment, owning can be made more attractive to first-time buyers -- 40 percent of the market. Putting them into fixed rate mortgages that will remain steady over the next five years will help, because adjustable rate mortgage payments can adjust as much as 155.6 percent in the same time.
In other words, if mortgage interest rates stay low, lenders lend wisely, homebuyers borrow wisely, and homeowners refinance wisely, we should be out of the mortgage meltdown soon. That's a lot of ifs, but it could already be happening.
