Homeownership is thought to give communities greater safety and stability, and to help individuals build wealth.
"We have a fixation on ownership," Baker says. "The idea is, if you're not an owner, you're a second-class citizen."
Since the late 1970s, around 64% of U.S. homes have been occupied by their owners. The rate climbed sharply after the turn of the century, hitting a high of 69.2% in 2005, at the top of the housing boom. It's been dropping since and was at 65.9% at the end of June (.pdf file).
Although it's unlikely the U.S. will become a nation of renters, homeownership rates are likely to keep falling -- and to settle well below the recent highs but also well above 50%.
Humphries, the Zillow economist, thinks it may eventually stabilize at around 64%. Kiesel, the Pimco analyst, sees a slow economic recovery driving it perhaps as low as 60%, a rate last seen in the late 1950s.
But Kiesel describes himself as bearish. Few experts expect it to reach as low as Germany (43%), the Netherlands and Denmark (54%) or even Japan (61%).
Fundamental change not likely
But even those who see Germany as a model for the U.S. don't expect we'll get there.
Each nation's mix of owners and renters tends to stay fairly stable because each depends on a complicated mix of forces, says Michael Lea, the director of the Corky McMillin Center for Real Estate at San Diego State University. Those include:
- Government subsidies that encourage renting over owning or vice versa.
- The availability of mortgages.
- Cultural values.
- The historical and economic predominance of landlords versus homeowners.
Emerging nations usually have the highest homeownership rates. That's because strong laws supporting renting haven't yet developed and few homes or apartments are available for rent. For example, homeownership rates are 71% in Mexico, 74% in Brazil, 75% in Thailand and 96% in Armenia, according to the Housing Finance Information Network.
Where rates are high, many owners may be squatters or have poor title to their land, as in Latin America, says Lea, an expert in real estate and mortgages internationally.
The U.S. government has been pushing homeownership since before World War II. We've got mortgage guarantees through Freddie Mac, Fannie Mae and the Federal Housing Administration; a mortgage-interest deduction; a property tax deduction; and a capital-gains tax exclusion for selling a primary residence.
Not all countries subsidize homeowners as heartily as the U.S. does. In Australia, Britain, Canada, Germany and Japan, for example, homeowners can't deduct mortgage interest from their taxes, Lea says. All but Australia and Japan, however, exclude a home sale from capital gains taxes.
In the U.S., the emphasis may change some, but a complete cutoff of housing's IV drip of tax money is very unlikely. Last year the mortgage-interest deduction alone ($131 billion) far exceeded the cost of the Afghanistan war ($105 billion) and dwarfed the $48 billion spent on all Department of Housing and Urban Development programs.
Combined, federal tax breaks for American homeownership and subsidized mortgages cost $230 billion in 2010. And housing typically goes where the money goes.
In contrast, only $60 billion of U.S. taxpayer money goes toward making renting more affordable. Only about a quarter of those who are eligible can actually get Section 8 rental housing subsidies.
"We just don't fund it," says Lea. "Congress has never come close to appropriating enough money."
A major reason people like renting is that it's flexible. Renters can pick up and move with little notice or expense. That freedom allows them, like Kiesel, to ride out the current economic storm while deciding what to do next.
Rent hikes switch the balance
But as competition for rental homes drives rents higher and as home prices continue to fall, the balance is about to shift, making buying the more affordable option. On average, rent prices are up 2% this year nationwide, and they could rise 3% more next year, according to Meyers.
Price increases are likely to cause lower-income renters serious difficulty. "Tenants will be pushed into properties of lesser value as rents increase," says Meyers.
New rental properties are under construction, but shortages could arise, particularly in Boston, Los Angeles, New York, San Diego, San Francisco, Washington, D.C., and San Jose, Calif. At the same time, assuming that mortgage credit eases up some, many renters could be driven by rent hikes into the arms of home sellers.
"My rent hasn't really gone up in five years, and I'm expecting it to," Kiesel says. "That could influence my decision. It's set to renew in January, and I can tell you that if it goes up a lot, I might want to buy. My view on the market is that we are getting close to the bottom."
But for most renters, the pressure of rising rents isn't a good enough reason to buy. It can be a lot harder to get out of homeownership than it is to get in. When you own your own home, if your income drops or your life changes and you have to sell but can't, you're stuck.
For lots of people, renting is always the right decision, whether it's the American dream or not.
