A couple of months ago I wrote a post about a bubble that you don't hear much debate about, the homeownership bubble.  The chart below shows that over the past decade, due to easy credit and cheap money, a disproportionate percentage of Americans than ever before have owned a home.  This trend is already in the process of "correcting".

The reason why that post as well as the new homeownership data published by the Census Bureau is relevant is because it holds the secret as to a housing recovery. 

The Census Bureau recently published their 4th quarter of 2008 homeownership rate and it came in at 67.5%, this is the lowest homeownership rate since the 1st quarter of 2001 when it was also at 67.5%.  The homeownership rate in the United States peaked at 69.2% during the second quarter of 2004.  Historically, the homeownership rate in the United States has been around 64%.

What this homeownership correction means is that the annual household formation of first time home buyers that the government is marketing their $7,500 first time home buyer tax credit at, and betting a housing recovery on, is going to be much smaller than they anticipate.

Simply put, "Larry Bird is not walking through that door."  If we are expecting multiple millions of first time home buyers to be entering the housing market over the next several years despite the restrictive mortgage requirements, we are going to be very disappointed.  There are not enough first time home buyers that  have the credit and capital, regardless of housing affordability, that will in and of themselves be able to absorb the excess supply of homes and bring price stability to the housing market in the near future.  

What we are going to see is fewer and fewer first time home buyers entering the market.  Think about it, housing affordability, according to the NAR, is the highest on record, yet despite this, home sales are at the slowest pace in nearly a decade.  It's not that Americans don't want to own a home, it's that a lot of them will be unable to get a loan.  Providing a $7,500 first time home buyer tax credit won't change this.  Nor will spending hundreds of billions plunging mortgage rates any lower, it's not about affordability.

The solution to this housing depression is to target the housing stimulus at individuals that do have the capital and credit to be able to invest in real estate.