The Leverageship Society: How Americans Ended Up Owning Less of More

Tim Cavanaugh | June 12, 2009

As noted here yesterday, the equity share of U.S. real estate ownership is careering almost as fast as it's careening, with Americans now owning only 41.1 41.4 percent of the equity on their real estate holdings. What does this actually mean for the rate of real homeownership: the rate at which Americans actually own all or most of their homes?

As of 2005, the U.S. Census Bureau said [pdf] nearly 25 million owner-occupied homes were owned free and clear, out of a total of just under 75 million. Calculated Risk, which I'm going to lean on too heavily, tries to separate the number of free-and-clear owners in order to tease out how much equity is owned by homeowners with mortgages:

Assuming 73.6% of current total assets is for households with mortgages (so $13.2 trillion of $17.87 trillion total), and since all of the mortgage debt ($10.464 trillion) is from the households with mortgages, these homes have an average of 20.4% equity. It's important to remember this includes some homes with 90% equity, and millions of homes with zero or negative equity.

The equity-portion trend going back to 1952 provides another piece of evidence for the degeneration of Americans since the time of our grandparents:

This long slide suggests many interesting theories. (Maybe higher interest rates tend to motivate borrowers to pay down their debt more actively?) This trend is not quite a mirror image but a stark contrast to the trend in stated homownership, which as Mike Flynn pointed out in Reason, remained stable for decades between 60 and 65 percent before swelling to 70 percent at the top of the bubble. And to be completely fair, the steep drop from 2005 on is attributable more to rapidly declining house assessments than to people purposely taking on more debt.

However, it's important to note that the massive decline in the rate of real homeownership coincides with the fad for an "ownership society," and that the Bush-era figures are far less impressive than anything that could be counted among Bill Clinton's own homeownership screwups.

For the moment let's leave aside the conservative-vs-libertarian debate (ably described by Ryan Sager in Reason back in the mesozoic era) over whether the federal government should be encouraging citizens to own, rent, lease-to-buy, put on layaway, or do anything else. Let's posit that owning your residence puts you under additional pressures to behave as a good citizen. We can go even further and say that having to meet a stern monthly mortgage nut could focus your mind in ways that are conducive to the greater good of the state.

Any further than that and we're in fantasyland: It's clear to me that people with negative equity are not encouraged to be good neighbors or residents. Last night I talked with an in-law who just lost his appraisal fee on a bank-owned property when the inspection revealed that the previous "owners" on their way out had poured concrete into all the pipes and attacked the walls with sledgehammers. Or maybe I should say my in-law saved hundreds thousands of dollars when the deal fell through. In any event, it's funny because it happened to him and not to me, and I've had enough family members in the real estate business to know this is not unusual behavior. (And actually, in the bizarro world of greater-good theory, maybe this was positive behavior, since somebody will have to be employed to fix the walls and pipes.)

In practical terms (and with due blame to the Democratic congressional minority-then-majority during the Bush era), it is clear that the ownership society produced a steep decline in ownership. If there's a lesson here, maybe it's that social engineering conservatives like is exactly as likely to prove counterproductive as social engineering liberals like.

Comments

|6.12.09 @ 1:41PM|#

Nine days later, the bank's manservants tracked down the previous owners, before pouring concrete down their throats and attacking their genitals with sledgehammers. Next time on reason.tv

Jordan|6.12.09 @ 1:47PM|#

(And actually, in the bizarro world of greater-good theory, maybe this was positive behavior, since somebody will have to be employed to fix the walls and pipes.)

These people were just following Obusha's economic theories. Broken windows for all!

Chad|6.12.09 @ 1:47PM|#

Seriously, these "previous owners" (I use the term "owner" loosely, as they didn't own squat), should be imprisoned. I would be if I were to pour concrete down the drain in my apartment.

Possession of the keys does not give you the right to destroy other peoples' property.

|6.12.09 @ 1:47PM|#

lost his appraisal fee on a bank-owned property when the inspection revealed that the previous "owners" on their way out had poured concrete into all the pipes and attacked the walls with sledgehammers.

He hadn't looked at the house before signing the contract?

I wonder what the criminal charges should be for this behavior? You're entitled to tear up property you own, of course, so it would be interesting.

Spoonman|6.12.09 @ 1:48PM|#

Well, yeah, but if it's being foreclosed, the idea is that you don't own it.

|6.12.09 @ 1:54PM|#

Sledgehammers? A crowbar is easier to swing and does more damage when you pull it back out.

|6.12.09 @ 1:54PM|#

Dare I suggest that some folks aren't capable of living in the freedoms we have? Lack of a moral compass is at the root of this mess. Why it started manifesting itself in home equity in the 50s is open for discussion.

|6.12.09 @ 2:02PM|#

SugarFree has oodles of riot experience. Heed his advice, youngsters, and you may make an impact in this world.

Warty|6.12.09 @ 2:04PM|#

Sledgehammers? A crowbar is easier to swing and does more damage when you pull it back out.

The good folks at Stanley have you and I in mind, my good man.

libertarian democrat|6.12.09 @ 2:08PM|#

Leverage is a good show.

|6.12.09 @ 2:08PM|#

Tulpa,

Nope, just a childhood of helping my dad rip out drywall for houses he was flipping. I also once used a weed eater to tear out a parquet kitchen floor. (Not recommended.)

Warty,

I want one of those really bad. Maybe I can justify it on the basis of zombie attack preparation.

Invisible Finger|6.12.09 @ 2:10PM|#

When he said "ownership society", he really meant "debtorship society".

When's the last time you heard a politician, let alone a bureaucrat, say the words "free and clear title"? Why, if people started getting the notion of free and clear title, they might start bitching about outrageous property taxes. Thankfully, a shrinking minority of Americans have free and clear title, so the status quo is safe.

Invisible Finger|6.12.09 @ 2:15PM|#

Why it started manifesting itself in home equity in the 50s is open for discussion.

What's there to discuss? FDR's "30-year mortgages, 20% down are the new normal" is what did it. Prior to that, most mortgages were either 7, 10, or 15 years and generally required 50% down. Longer-terms with 20% down were generally available only through mutual societies and their approval processes were much more stringent.

|6.12.09 @ 2:16PM|#

In practical terms (and with due blame to the Democratic congressional minority-then-majority during the Bush era), it is clear that the ownership society produced a steep decline in ownership.

No, in practical terms it's clear that the two things happened at the same time. These particular government actions were only one of many contributing factors. And government actions designed to promote home ownership have been going on since Hoover. There has been an ever-increasing amount of help and leverage needed to buy homes, but that's also related to increased home prices. It's a combination of deciding that people have to be helped to buy homes regardless of the price plus rising home prices. The first bad idea, while necessary, is not sufficient.

Among other things, zoning and land-use management helped make housing more expensive in many locations. Government programs then designed to help people continue to afford housing had to resort to using more and more leverage. It's true that if the government had been willing to stop then the prices would have stopped increasing sooner. But there are so many causes and contributors to this process; many necessary, few sufficient.

Spoonman|6.12.09 @ 2:17PM|#

I also once used a weed eater to tear out a parquet kitchen floor. (Not recommended.)

That sounds AWESOME.

|6.12.09 @ 2:23PM|#

I would be interested to see a comparison over the decades of the percentage of household income going to mortgage payments. And property taxes for that matter.

|6.12.09 @ 2:24PM|#

I wonder if the 30-year, 5% down mortgage is actually triggering a temporal third-party-payer problem and driving housing prices.

If A is paying B for the benefit C, then C doesn't care about the price. But in this scenario C is you, B is the high house price with long-term loan, and A is yourself in the future.

"The house was way too expensive, but I've squeezed the monthly payments down to almost what I can handle if nothing ever changes. The rest is FutureSugarFree's problem."

|6.12.09 @ 2:27PM|#

I also once used a weed eater to tear out a parquet kitchen floor. (Not recommended.)

That makes me think of the way I used to use the lawnmower to do a lot of stuff more than mow the lawn. Amongst those things: trim bushes, destroy rocks (steel mower only, kids), and kill in-ground yellow jacket nests.

|6.12.09 @ 2:56PM|#

If there's a lesson here, maybe it's that social engineering conservatives like is exactly as likely to prove counterproductive as social engineering liberals like.

That's libertarian talk! As we all know, that way lies madness.

|6.12.09 @ 3:05PM|#

If there's a lesson here, maybe it's that social engineering conservatives like is exactly as likely to prove counterproductive as social engineering liberals like.

So it doesn't matter if the pocket protector is worn in the left pocket or the right?

|6.12.09 @ 3:09PM|#

R C Dean, as long as your calculator holster is on the left, you're good to go.

T|6.12.09 @ 3:29PM|#

I want one of those really bad. Maybe I can justify it on the basis of zombie attack preparation.

Hurricane prep is my catch-all excuse for tools this time of year. Also works for guns, not that I need an excuse for those.

Tim Cavanaugh|6.12.09 @ 3:45PM|#

You are correct, Thacker.

|6.12.09 @ 3:46PM|#

Every once in a while during the last two weeks or so, I write a post, hit submit comment, and end up with a blank page. What's up with that? Anyone else experiencing this?

Gordon Freeman|6.12.09 @ 3:48PM|#

Oh, yes, the Stanley 55-099 FatMax Xtreme Fubar Functional Utility Bar!

It goes wicked good across a zombies face hugger. I give it my personal seal of approval.

FatMax Xtreme Fubar|6.12.09 @ 3:49PM|#

"The good folks at Stanley have you and I in mind, my good man."

I LOVE it!

FatMax Xtreme Fubar|6.12.09 @ 3:51PM|#

"Why, if people started getting the notion of free and clear title, they might start bitching about outrageous property taxes."

You talkin' to me? Cause I just paid mine and I am pissed as hell. My house dropped about 30% in value, but my taxes stayed the same.

|6.12.09 @ 4:02PM|#

Every once in a while during the last two weeks or so, I write a post, hit submit comment, and end up with a blank page. What's up with that? Anyone else experiencing this?

This happens when you take too long writing your comment. Don't know why. If I write a really long post, I've made it a habit to copy it and refresh the page before submitting.

|6.12.09 @ 4:04PM|#

"This happens when you take too long writing your comment. Don't know why. If I write a really long post, I've made it a habit to copy it and refresh the page before submitting."

That fits perfectly with my experience. Thanks. I'll remember not to think while writing*

* And I wish to premptively say FU to all of you who will respond with, "as if you ever do."

|6.12.09 @ 4:12PM|#

Every once in a while during the last two weeks or so, I write a post, hit submit comment, and end up with a blank page. What's up with that? Anyone else experiencing this?

This happens when you take too long writing your comment. Don't know why. If I write a really long post, I've made it a habit to copy it and refresh the page before submitting.

Your session timed out. Standard IIS setting for session is 10 minutes; I don't know about Apache.

EAP\'s Wife Peggy|6.12.09 @ 4:14PM|#

And I wish to premptively say FU

As if you ever do.

Russ 2000|6.12.09 @ 4:42PM|#

R C Dean, as long as your calculator holster is on the left, you're good to go.

What, no slide rule?

|6.12.09 @ 4:58PM|#

Another reason to promote homeownership is that it's forced savings.

I know a lot of people who aren't saving much, if anything, in their 401K's but will likely have a paid off house when they retire. This will allow them (in theory) to get a reverse mortgage to supplement their meager SS checks.
Or maybe get some rental income.

You're either paying your own mortgage or someone else's, so it might as well be your own.

|6.12.09 @ 5:00PM|#

You talkin' to me? Cause I just paid mine and I am pissed as hell. My house dropped about 30% in value, but my taxes stayed the same.

When the prices of housing first started dropping, I remember reading and hearing many pundits say some version of, "Well at least property taxes will go down." I immediately thought, "In what world are you living? There's no way that's going to happen without a revolt."

Technically, even homeowners insurance premiums should go down as the home price goes down, but that ain't happening either.

|6.12.09 @ 5:14PM|#

Technically, even homeowners insurance premiums should go down as the home price goes down, but that ain't happening either.

No, insurance valuations are based on replacement cost which does not change like purchase prices do. A substantial part of the purchase price of a house is the land cost. That does not figure in the insurance valuation which only considers improvements and contents.

|6.12.09 @ 5:22PM|#

"Technically, even homeowners insurance premiums should go down as the home price goes down, but that ain't happening either."

ya not happening, but arson will increase as many more people now have insurance coverage for far more thant he value of the house. Your local insurance company probably sold it's policy to AIG or JP Morgan, so you'd actually be doing good for humanity if you can burn your house down and get some of the people's money back. The best way to do arson is make it look like mice or rats chewed through a wire and started the fire....don't use a bunch of gasoline, they can figure that out pretty easily.

|6.12.09 @ 5:23PM|#

With my insurance I picked how much to cover it for as long as it was above some minimum that the mortgage guys had set.

T|6.12.09 @ 5:47PM|#

The best way to do arson is make it look like mice or rats chewed through a wire and started the fire....don't use a bunch of gasoline, they can figure that out pretty easily

Yeah, avoid accelerants and such unless you can come up with a plausible garage scenario. Best plan is to light something near an outlet and walk away, taking your lighter with you.

|6.12.09 @ 6:34PM|#

The best way to do arson is make it look like mice or rats chewed through a wire and started the fire....don't use a bunch of gasoline, they can figure that out pretty easily

You probably don't want to post on the Internet about it, either.

baldanders |6.13.09 @ 5:36AM|#

Recently overheard in the baldanders household:

"So, I owe the IRS 50k, huh?"

"Yeah"

"OK but I'm also a Canadian citizen. Maybe i should just go to Canada at this point because I'm fucked if I'm going to give the IRS 50k."

"Ok, but you're not getting it. You would still owe them 50k, and they would continue to tax your earnings, even if you earned them in Canada."

"Hmm- does Canada extradite Canadian citizens to the US over tax problems?"

"Well- no,"

"So basically if I actually pull a Baldwin I'll be Scot free, right? Fuck this shit. The US can go fuck itself. I guess I can't come back to visit my family, but.. fuck it- most of my family fled to Canada during the Vietnam war, so... The only thing I'm going to miss is NYC, but Montreal is a pretty decent substitute."

I just need to get my passport squared away now. I haven't had a valid ID in years. But yeah- I guess right-wingers like me aren't very patriotic.

mark|6.14.09 @ 11:18PM|#

baldanders, so exactly when did you decide that paying your income taxes was no longer patriotic? when Bush started up a war on Iraq?