Homeownership to decline further, housing analyst predicts

Somewhere, somehow, in the last decade the so-called American Dream seemed to insinuate itself into the Bill of Rights. Government policy, among other factors, pushed homeownership to a lofty 68% of all households.

That was then.

The number has been steadily backsliding in the last couple of years, and housing analyst John Burns says he got “a lot of heat” for his recent report predicting that homeownership would drop below 62% — and maybe further — if the number of “strategic defaulters” who walk away from their underwater mortgages continues to increase, he said.

“Homeownership is clearly a value that’s promoted by most politicians,” Burns wrote in the mid-July report. “They are in for a rude awakening, however, and a legacy that they will not be proud of.”

It’s an interestingly glum assessment from a man whose real estate consulting company based in Irvine provides market analysis to some of the nation’s largest builders, developers and real estate investors. He’s no cheerleader, Burns said — they’re paying him to call it as he sees it.

And the way he sees it, several factors have historically pushed homeownership upward:

•Aging demographics (more people buy houses as they get older).

•New household formation (younger people leave Mom and Dad and set out on their own).

•Affordability.

•Social policy.

But a couple of those factors have clearly hit the wall. In this market, many of those older would-be buyers can’t sell what they already own and move up, and new household formation has been dealt a setback by fewer people leaving the nest because they can’t afford to live on their own.

Social policy, Burns said, is a giant question mark.

“In 1999, Congress and the Clinton administration made a conscious decision to grow homeownership,” he said. “The vehicle was allowing Fannie Mae and Freddie Mac to grow substantially by increasing the dollar limit on the number of mortgages they could take on.”

Now what to do with those two entities is a hot-potato question, Burns said.

Despite some recent initiatives to support more affordable rental housing, “I don’t think the majority of Congress is shifting to favor renting,” he said. “But they do finally realize that not everybody is meant to be a homeowner.”

Affordability, though, is the bright spot.

“In most markets of the country, it’s now the most affordable time to purchase in three decades,” Burns said. “If a lot of people who make $40,000 to $50,000 could come up with a down payment, and if they were convinced that they weren’t going to get laid off, that would be the real positive that would drive housing up.

“I know there are a lot of ‘ifs’ there. It’s true, though.”

If the previous list is supposed to amount to the pluses for homeownership, consider the minuses Burns said were weighing it down:

•Higher immigration levels. Not only do the majority of immigrants not have the money to buy homes, they also are cash-spending consumers who don’t have the credit histories requisite for home buying. They historically rent for five to seven years on average, Burns said.

•Tighter lending policies than in recent years, though they’re still generous by historical standards.

•Catapulting mortgage default rates. Burns estimates that 8 million homeowners aren’t paying their mortgages, and 6 million of those will lose their homes. Government rescue programs aren’t working because homeowners have too much credit card debt, he said.

Burns declined to enter the “when will housing recover” derby.

“I do think we’re bouncing along the bottom [of the falling market] here, but we’re clearly bouncing down right now,” he said. “We need job growth and a healthy mortgage market to pull us out of this.”

Umberger writes for the Chicago Tribune.