Home Ownership at Levels Seen in 2000
As one might expect, the housing market crisis is resulting in a decreasing level of home ownership. Indeed, all of the foreclosures that have been happening are sending the level of home ownership to the levels seen in 2000. Calculated Risk has this great graph that illustrates the home ownership trend of recent years in the U.S.:
You can see where “creative financing” and lax lending standards prompted a quick spike in home ownership. Unfortunately, while in some cases policies might have been well intentioned to increase home ownership among different groups of people, the implented methods may not have been the best — in hindsight — since long-term home ownership and real wealth didn’t result.
Instead, short-term home ownership went up, but as we can see, it has certainly dropped. Calculated Risks describes the reasons why things probably won’t drop too much further, though:
The homeownership rate decreased to 67.3% and is now back to the levels of Q2 2000. …
The homeownership rate increased because of demographics and changes in mortgage lending. The increase due to demographics (older population) will probably stick, so I expect the rate to decline to the 66% to 67% range – and not all the way back to 64% to 65%.
Go forward, it would probably be best to encourage would-be home owners to take things a little more slowly, in order to avoid a similar crisis in another decade or so. Here are some things to consider when buying a house — to increase the chances that you don’t lose the home in the near future:
- Put together a down payment. While I’m not saying you have to get a full 20% down payment, you should save up for some sort of a down payment. 5% to 10% is good, but even if you can only get the 3.5% required by the FHA, that’s better than nothing.
- Get a fixed rate loan. Stay away from the “creative financing” of interest only, hybrid and ARMs. Instead, go for a fixed rate loan.
- Clean up your credit score. Make sure that you are doing what you can to have good credit. You’ll get a better loan.
- Go for a modest home. Don’t spring for the bigger home just because someone will lend you the money. Figure out what you can afford with a fixed rate conventional loan — even if it means a more modest home.
