U.S. Homeownership Rate Drops Steadily: So Much for the ‘American Dream’

According to a recent housing report by Freddie Mac, the rate of homeownership in the U.S. continues to drop. A ten-year chart (below) that accompanied the report showed a steady decline in the total homeownership rate from 2005 to 2015.

We are now at the lowest ownership level since 1967, according to U.S. Census figures.

Homeownership rateBut what’s interesting here is that the homeownership rate in the U.S. has not rebounded in tandem with the housing recovery.

We know why property ownership dropped between 2007 and 2010. That was when the housing market collapsed. (The yellow shaded area in the chart shows the worst phase of the collapse.)

But the housing market has been recovering steadily for a few years now, and yet the rate of homeownership in the U.S. continues to drop. Why the disconnect?

It begs the question: Is owning a home no longer the “American Dream”? Or was it ever a dream to begin with?

Whose American Dream Is It?

We’ve long been told that homeownership is the “American Dream.” George W. Bush promoted this idea in the early 2000s, and President Obama followed suit a decade later. They made it sound like owning a home was the pinnacle of American achievement, something we should all strive for at all times.

Note the distinction here. We’re not talking about reducing homelessness. We’re not talking about affordable housing initiatives, rent control, or other broad-based initiatives. We are talking about people buying homes. That’s what the “owner” in homeownership means. The newfangled American Dream concept is meant to put more buyers into the market, thereby increasing profits for the housing industry.

Let’s put aside, for a moment, the fact that this is a silly marketing slogan designed to sell houses and generate mortgage loans. What do the numbers show? How do Americans feel about homeownership from a statistical standpoint.

If you look at the U.S. total homeownership rate over the last decade (shown in the chart above), it’s clear that Americans have a different view today of owning a home — and rightly so. The housing crisis showed us how quickly the dream of ownership can become a nightmare.

History: Pushing Homeownership to ‘Untapped Markets’

The idea of homeownership being the American Dream goes back decades. While it’s difficult to pinpoint the first usage of the phrase, it rose to prominence during the late 1980s and 1990s. That was when lenders realized the tremendous profit potential of extending loans into “untapped markets,” namely low- and moderate-income home buyers.

In an excellent paper from 2005 entitled “Low-income Homeownership: American Dream or Delusion?” (published in the journal Urban Studies), author Anne B. Shlay recounts this shift:

“The Department of Housing and Urban Development then established target goals for the purchase of loans made to low- and moderate-income homebuyers (less than or equal to the MSA median income) in central cities and to specifically targeted lower households. The GSEs were required to target the ‘under-served’ markets. Both Fannie Mae and Freddie Mac increased activities around innovating loan products that would help them to meet these goals.”

We know the rest of this story. Aggressive lending and “innovative” loan products helped create a housing bubble that eventually exploded with catastrophic results. The American Dream, and the drive to increase lending to “untapped markets” like low-income borrowers, blinded everyone to one immutable fact: Some people just should not purchase homes.

Linking the Dream to Home Buying

The general idea of an American Dream is nothing new. It goes back centuries, to the very founding of our nation. Later, in the 1930s, historian James Truslow Adams distilled and popularized the notion. In his 1931 book The Epic of America, Adams wrote:

“But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement.”

Of course, we also have the American Dream of Martin Luther King, Jr., who believed it was intrinsically linked to freedom and equality for all citizens.

But somewhere along the line, the American Dream got hijacked. It was taken away from the social visionaries and the equality crusaders and applied to — of all things — asset ownership.

And that’s where we are today. At least, that’s where we were, before the housing crisis reshaped the national perception of homeownership. Statistics and surveys have shown that, in the wake of the housing collapse, Americans have a different view of homeownership. Once upon a time, people believed that homes would always appreciate in value. It was a given. They just keep going up, up and up. But now we know better. We no longer see real estate property as the “best investment.”

Owning vs. Renting: Do What Makes You Happy

As a former homeowner turned renter, I can weigh in on both sides. Clearly, there are pros and cons to both owning and renting a home. When I owned a home, I enjoyed the fact that I could change my house if and when I wanted to — new flooring, upgraded fixtures, landscaping overhaul.

But when the economy tanked during the recession, homeownership became less of a joy and more of a burden for me. So I sold my house and ditched my mortgage debt. Today I’m a renter, going on five years now. That’s what works best for my family.

Would I buy a home again someday? Maybe. As the editor of a housing news website, it’s hard not to think about it. But I also think differently these days. Ideologically, I don’t view homeownership as the ultimate American Dream. And financially, I no longer view it as bulletproof investment strategy. We’ve seen the flaws in this line of thinking. My American Dream is for my family to be happy and healthy. Whether I rent or own a home has little to do with that.