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

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.