If Housing Was Overpriced, Is It a Bad Thing Fewer Americans Own Houses?


Our story thus far: Thanks to a combination of tulip-bulb-style mania among investors (either stupid or greedy, depending on your predilections), government policies (mortgage-interest deductions for two homes, subsidized loans, giant agencies instructed to buy up all private mortgages, etc.), and Fed policy (keep interest rates as low as possible for as long as possible), record numbers of Americans bought houses (read: took on debt), typically at inflated prices (partly due to other government policies that restricted supply).

You know the next part: The housing bubble popped, leaving lots of people underwater (owing more than their houses are worth at the moment) and triggering a financial crisis (panic probably a better term) that somehow was solved by bailing out big financial houses in such a way that there are fewer of them but they are bigger and more powerful than ever.

Despite (read: because of) legislation that is supposed to make sure this never happens again (read: sometime again, probably sooner than even cynics believe).

Here's USA Today on the latest home ownership data:

The U.S. Census Bureau reported Tuesday that the nation's homeownership rate fell to 66% in the fourth quarter, continuing a seven-year drop from a fourth-quarter peak of 69.2% in 2004.

At the same time, U.S. home prices fell 1.3% in November from October and were 3.7% below 2010 levels, the Standard & Poor's/Case-Shiller home price index indicates….

As of November, average U.S. home prices were back to mid-2003 levels, S&P says.

"Americans are less keen on homeownership knowing now that prices can fall," says Paul Dales, economist with Capital Economics….

Many economists expect home prices to continue to fall this year and maybe into next year before stabilizing and then showing little or no appreciation for some time….

On a year-over-year basis, only two cities showed rising values. Detroit was up 3.8%, and Washington, D.C., 0.5%, the Case-Shiller data show.

More here.

This sort of report is typically uttered with the sort of whispering tone one reserves for the bedside of a dying relative. But with the exception of the slight year-over-year increase in house values in DC, shouldn't this all be cause for celebration? It means that housing prices are heading back to where they were before the bubble inflated like one of Newt Gingrich's chins right before the former Speaker is about to rhapsodize about rent-to-own living pods on the Earth's moon?

Here's the Census Bureau's figure on home ownership since 1995:

Lest we forget, housing has never been the rock-solid investment we've been told it always was. Reason Foundation analyst Anthony Randazzo distilled this insight simply by adjusting the housing price index for inflation. What he found:

Randazzo figures that housing prices still have a ways to fall to get back to their pre-bubble long term average and I suspect he's right. Still, it's always a good time to buy. Or to rent. It depends on your personal situation - geographic, professional, financial. But living indoors almost always is better than living outdoors for any length of time.

But the question of renting versus owning? That's really not such a big deal as people think.