The Mortgage Bankers Association reported that mortgage applications fell 5.6% last week while the US Census Bureau reports that home ownership slipped again in the first quarter of the year to 66.4% compared to peak of 69.2% in the 2004 fourth quarter. Is it possible that the housing bust has convinced some people that owning a home is not a good idea after all?
While there are may be a few doubters out there, it is easy to read a lot into the data that aren’t really there. On mortgage applications, the fall is largely the result of changing FHA premiums on government purchase applications and the lack of an adjustment for Good Friday. The longer term trend is roughly flat since the beginning of the year. Home ownership — the percentage of occupied homes that are occupied by the owner — was 63%-64% until 1995 when it rose to 95% and then continued to rise with rising homes prices until the peak in late 2004. Since then it has slid down. This pattern is similar to home prices, although it leads the prices by a year or two. Behind this are a host of factors and trends: family formation rates, changing attractiveness of different parts of the country, shifts in employment and home prices. Given the turmoil of the boom and bust, it is too soon to tell if the declining ownership rate is merely the side effect of the particularly nasty recession or if it is a deeper change in attitudes. If ownership is still falling in 2013, the idea that fewer people want to own their homes than before will make a bit more sense.
While thinking forward, there are other issues on the horizon that will affect the attractiveness of home ownership. Two big ones are what the future of Fannie Mae and Freddie Mac look like and what, if anything, happens to mortgage tax deductions. While there are some proposals about Fannie Mae and Freddie Mac, there no decisions as yet. Some of the ideas for tax reform (read fewer loopholes, less deductions, lower rates and more revenue for Uncle Sam) include dropping the mortgage interest deduction. If the rates are really cut, all deductions would be worth less and losing a deduction – even a big one – would be less of an issue. On top of all this, the level of a conforming mortgage (the largest loan that Fannie Mae will buy) will drop for high housing cost areas on September 30th, making getting a large mortgage a bit harder in many parts of the country. For now the only thing one can say about all this is that uncertainty is large and any conclusions about how attractive ownership are difficult to support.