NY Fed Economists Foresee Steep Decline in Homeownership
A new study by economists at the New York Federal Reserve suggests that "effective" homeownership rates have fallen as much as 25 to 45 percent below actual homeownership rates in metropolitan markets that have been hit hardest by falling property values.
Nationally, homeownership peaked at 69 percent in the third quarter of 2006, but the official homeownership rate "will experience significant downward pressure" in the coming years, according to the staff report as dramatic increases in negative equity reduce incentives to own rather than rent.
Lower property values create incentives for homeowners to behave more like renters than owners, the economists argue, creating an effective homeownership rate of 63.6 percent I the first quarter of 2009, 3.9 percent below the measured rate. Owners suffering negative equity are financially stretched, have less of a motive to maintain their properties.
Negative equity is also contributing to reduced savings rates, lowered household net worth, and significantly lower levels of household mobility, the study said.
Declining homeownership, and effective homeownership, will have negative impacts on traditional social benefits of homeownership such as well-maintained properties, better local schools, and stronger communities. It may also undermine popular support for public policies that support homeownership such as the mortgage interest deduction and federal housing programs.
For a copy of the study and more coverage, check out Real Estate Economy Watch.
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