homeowner distress has begun to abate

CONTINUING SLIDE IN HOMEOWNERSHIP

The joint center of housing studies at Harvard University reports

Declines in the national homeownership rate accelerated in

2011 as increasing numbers of households opted—or were

forced by foreclosure—to rent. The national homeownership

rate dipped to 66.1 percent, down 0.7 percentage point from

a year earlier and 2.9 percentage points from the 2004 peak.

Despite the drop in rates for all age groups under 65, however,

the overall rate stands well above the 64 percent prevailing in

the 1980s and first half of the 1990s. Indeed, the national rate

remains relatively strong both because the ranks of households

with heads aged 65 and over are growing and because homeownership

rates among this age group are near record highs 

While rates for younger households may fall further

in the next few years, the aging baby boomers will help to mitigate

the impact on the national homeownership rate.

Thankfully, homeowner distress has begun to abate, with the

share of loans 90 or more days delinquent falling steadily from 5.1

percent of mortgages at the end of 2009 to 3.1 percent in the first

quarter of 2012. At the same time, though, the backlog of loans in

the foreclosure process has only edged down from 4.6 percent to

4.4 percent. Since nearly three-quarters of these borrowers have

not made a mortgage payment in more than a year (and 42 percent

have not done so in two years), most will ultimately forfeit their

homes. In the near term, the recent settlement between large loan 

servicers and the federal and state governments could also drive

up foreclosures as long-pending cases are pushed to resolution.

Despite this drag, recovery in the owner-occupied market could

strengthen if positive job numbers and tightening markets encourage

more households to buy. Although young households have

increasingly opted to rent in recent years, most still aspire to

homeownership. The late-2011 Fannie Mae National Housing

Survey found that 86 percent of renters aged 18–34 believe they

will ultimately own homes. In addition, close to 70 percent of

respondents to both the Fannie Mae survey and the University

of Michigan Survey of Consumer Attitudes felt that it was a good

time to buy. In fact, the monthly mortgage payments for the typical

home currently compare more favorably to rents than at any

time since the early 1970s 

So far, though, the weakness

in the economy and continued uncertainty may be deterring many

would-be buyers from taking advantage of today’s home prices

and low mortgage interest rates.