The housing market is recovering. Prices are higher. Volumes are picking up. And builders are feeling more confident.
But there's one statistic that continues to fall: the homeownership rate. While this has led many observers to wonder whether we're becoming a nation of renters, the data simply doesn't support such a gloomy conclusion.
A deceivingly dramatic decline
To be clear, the homeownership rate has dropped considerably over the past few years. At its peak in 2004, an estimated 69.2% of occupied housing units were owned by the people living in them. By the first quarter of this year, the percentage had fallen to 65%.
If you didn't follow the housing market closely, you'd be excused for concluding that a roughly four percentage point decline in the homeownership rate is nothing to write home about. But once you start looking into the numbers behind the figure, it becomes apparent that this is a problem, or, at least, that it could cause havoc in the broader economy.
Look at it this way. In 2012, there were an estimated 114.5 million occupied housing units in the United States, 74.9 million of which were owner-occupied. That equates to a homeownership rate of 65.4%.
Now, assume that the rate had never declined from its high of 69.2% in the second quarter of 2004. Under this scenario, a further 4.3 million people would own their homes today as opposed to renting. That's roughly 200,000 foregone home sales a year.
What's behind the fall?
The question of what's behind the fall in the homeownership rate is more nuanced. But while the evidence is circumstantial in nature, it's still relatively clear.
"The recent declines in the homeownership rate can be attributed to the high rates of foreclosures, which forced many people to rent as they lost their homes," said Zillow (NASDAQ: Z) senior economist Svenja Gudell.
You can see this in the following figure, which illustrates the number of properties in some stage of foreclosure between 2005 and 2012. Before the crisis, fewer than 1 million properties had either been foreclosed upon, auctioned off, or were being held by banks following a default. By 2009, that number had shot up to more than 2.8 million.
Following the crisis, moreover, banks have become comparatively reluctant to underwrite purchase-money mortgages. In the first case, they haven't needed to, given the robust refinancing business that boomed after mortgage rates dropped to historic lows. The statistics provided in Wells Fargo's (NYSE: WFC) last earnings report illustrates this point. Of the $109 billion in mortgages that the bank underwrote in the first quarter of the year, upwards of 70% related to applications to refinance an existing mortgage as opposed to purchase a new home.
Beyond this, many lenders are still licking their wounds from the financial crisis. Bank of America (NYSE: BAC) offers a case in point. Since assuming the monumental liabilities of Countrywide Financial in 2008, the nation's second largest bank by assets has been forced to retreat from a number of previously lucrative underwriting markets, including those for correspondent and wholesale mortgages.
But America isn't becoming a nation of renters
There's nevertheless little reason to believe that the American psyche has been so damaged by the crisis that the dream of owning a home is now a relic of a bygone era.
A survey of economists conducted by Zillow last year showed that a majority of respondents -- 56%, to be exact -- expected the rate to be below 65.4% within the next five years -- which, as I noted earlier, it already is. However, only one in five believe that it will fall below the 62.9% floor established in 1965.
As Gudell told me, "The desire to be a homeowner is deeply engrained in the U.S. consumers' minds -- it is [still] part of the American Dream."
In sum, to refer back to the first chart in this article, the only conclusion that we can draw at this point is that the homeownership rate is reverting to its long-run average. It's a cyclical statistics. As a result, one should expect it to go up and down. But while it's headed lower now, at some point it will join its housing data brethren that are once again on the ascent.
3 stocks that will help you retire rich
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.