Why Falling Homeownership May Be a Good Thing

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falling homeownershipBy Dan Caplinger

Ever since the end of the boom years of the early 2000s, the housing market has struggled to hit bottom, seemingly plowing ever lower even after years of declines. As a result, millions of former homeowners have lost their homes, while millions more owe more on their mortgages than their current homes are worth. Many have bemoaned this trend as meaning the end of the American Dream of homeownership.

But when you take away the emotional response to the housing bust, the question remains: Are falling levels of homeownership really such a bad thing? For many, owning a home never made financial sense -- and avoiding the burden of having so much debt on your biggest asset can make your financial life a lot easier.

Falling From Record Highs

When the Census Bureau released its 2010 housing data last year, it revealed an astonishing fact: The percentage of Americans who owned their own homes fell by the largest proportion since the Great Depression. That made for good headlines at the time, as media sources proclaimed the death of the American Dream.

But a closer look at the numbers reveals a much different picture. During the Great Depression, many fewer people owned their homes -- around 45 percent, according to Census data. But by 2010, that rate was up to 65 percent -- meaning that tens of millions more American families became homeowners during that period. The rate even got closer to 70 percent before the housing crash.

The More Important Statistic

By themselves, these figures don't mean much. Whether someone owns a home or rents one from someone else doesn't matter in terms of overall demand -- as long as either a homeowner or an investor/landlord wants a property, the effect should be the same. What has really caused a problem, though, is the number of empty homes.

Again looking at Census data, the number of empty homes jumped by about 4.6 million over the past decade. When you consider that the total housing stock jumped by only 16 million homes, you can see that new supply far exceeded actual demand for real estate. Overbuilding was especially rampant in hot areas of the country, including the Desert Southwest and the Deep South.

Overbuilding worked out great for homebuilders at first, as it didn't cause any problem as long as there was enough demand for the homes. Between 2000 and 2006, Hovnanian saw sales jump more than fivefold -- only to give back every bit of those gains by last year. KB Home, which got in on the boom earlier, saw the same trend -- and its recent sales are only a third of its 2000 revenue. Standard Pacific and other builders in particularly hard-hit regions were especially prone to big leaps followed by inevitable declines.

The New Normal

Meanwhile, the aftermath has driven many speculators out of the market -- at least those who are seeking short-term rather than long-term profits. Even though that hurts demand in the short run, it arguably makes the market healthier in that it more accurately reflects the intrinsic demand for housing as a necessity rather than simply as an investment asset.

Of course, not everyone wins in that scenario. Hamstrung mortgage banks Citigroup and Bank of America would likely prefer more speculation in the market, since it would help those institutions get bank-owned assets and bad loans off their books more quickly.

But for people trying to decide whether to buy, the combination of low interest rates and cheap housing makes buying as attractive as it's likely ever going to be. So if your finances don't work out to allow you to buy now, they likely never will. That may sound brutal, but that knowledge should help those who can't afford a home to make arrangements that will work -- and hopefully benefit from the freedom that not being tied down to a house provides.

The Dream That Became a Nightmare

So rather than a regretful loss of the American Dream, falling homeownership could actually be good both for individuals and for the economy as a whole. Instead of betting your entire financial life on a place to live, you can look at the housing bust as your wake-up call to consider other priorities first.

Even if you have a big mortgage weighing you down, you still need to save for long-term goals like retirement. You'll find several stocks that can help get you there in The Motley Fool's latest special report. It won't cost you a thing, but jump on your chance now before it's gone.

Also see:
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5 Reasons Why Real Estate Deals Collapse
Most Americans Still Believe in Homeownership, Poll Says


11 PHOTOS
Top 10 Cities for Families
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Why Falling Homeownership May Be a Good Thing

Acres of parkland per 1,000 residents:24.2 (20th highest)
Playgrounds per 1,000 residents: 4.0 (11th highest)
Violent crimes per 1,000 residents: 5.9 (46th lowest)
Unemployment rate: 10.0% (43rd highest)
Adults with at least a high school degree: 87.6% (24th highest)


A number of features make Greensboro a first-class place to raise a family. Activities are plentiful. Its Country Park is one of the most visited parks in the country. It also has one of the highest playground-to-resident ratios in the country. Its excellent school system includes some of the top-ranked public high schools in the country, among them the Early College at Guilford and the Weaver Academyfor Performing & Visual Arts and Advanced Technology. Traditionally a center for the textile and tobacco industries, Greensboro's resurgence in recent years can be credited partly to new tech businesses opening up shop. With the local economy surging, home prices in Greensboro have risen steadily over the years, growing 4% from 2007 to 2010.

Acres of parkland per 1,000 residents:13.5 (42nd highest)
Playgrounds per 1,000 residents: 3.5 (15th highest)
Violent crimes per 1,000 residents: 2.6 (13th highest)
Unemployment rate: 8.5% (33rd lowest)
Adults with at least a high school degree: 92.8% (8th highest)


Boise is one of the safest cities in the country, and it also holds education as a high priority. According to the Boise Metro Chamber of Commerce, half of Idaho's general fund is allocated to education.The city has an especially high number of playgrounds for children to enjoy, and for the older kids, among of the highest numbers of skateboard parks per capita in the country.

Acres of parkland per 1,000 residents: 21 (25th highest)
Playgrounds per 1,000 residents: 3.4 (20th highest)
Violent crimes per 1,000 residents: 4.9 (33rd lowest)
Unemployment rate: 4.5% (2nd lowest)
Adults with at least a high school degree: 88.2% (21st highest)

Omaha's unemployment rate for 2011 was the second-lowest among major U.S.cities, at an astonishing 4.5%. The city has a bustling economy, with a large insurance, health care, and finance presence. FiveFortune 500 companies are based there, including Warren Buffet's Berkshire Hathaway. The city also has a relatively impressive high school graduation rate. Pediatric coverage is good in Omaha, as the city has a number of top-ranking hospitals, including the Children's Hospital and Medical Center.

Acres of parkland per 1,000 residents:15.4 (36th highest)
Playgrounds per 1,000 residents: 2.6 (35th highest)
Violent crimes per 1,000 residents: 1.8 (7th lowest)
Unemployment rate: 7.5% (22nd lowest)
Adults with at least a high school degree: 93.3% (4th highest)


Many cities in Texas would rank among the exceptional places to raise a family if it weren't for high crime rates. Affluent Plano does not face this problem. Its rate of violent crime is the seventh-lowest among all major cities, and Forbes recently rated Plano America's safest city. It also boasts a top-notch school system. Due to the city's strengths, its population has more than doubled in recent years. Among the many side effects of that growth has been an increase in home prices that outpaced the rates in most other big cities.

Acres of parkland per 1,000 residents:72.2 (3rd highest)
Playgrounds per 1,000 residents: 1.4 (18th lowest)
Violent crimes per 1,000 residents: 1.5 (6th lowest)
Unemployment rate: 6.3%: (7th lowest)
Adults with at least a high school degree: 95.9% (the highest)

Scottsdale has emerged as one of Arizona's power cities. It has an extremely low rate of unemployment -- less than 6.3% for 2011 -- and an extremely high median household income of nearly $69,000. It also has the sixth-lowest rate of violent crime among major cities. Perhaps most impressive is the fact that Scottsdale has the highest rate of educated adults among all major cities. The city has the third-largest amount of parkland relative to population. It is home to McDowell Sonoran Preserve, the fifth-largest city park in the country. Scottsdale also has among the most baseball diamonds relative to population.

Acres of parkland per 1,000 residents:24.8 (18th highest)
Playgrounds per 1,000 residents: 3.3 (21st highest)
Violent crimes per 1,000 residents: 4.8 (32nd lowest)
Unemployment rate: 3.7% (1st lowest)
Adults with at least a high school degree: 92.9% (6th highest)

Like neighboring Omaha, Lincoln's economy has done exceptionally well through the recession. It avoided major swings and the unemployment rate for 2011 the lowest among all major cities. According to the Bureau of Labor Statistics, unemployment there hasn't exceeded 5% in the 21 years since the department began tracking it. The city also has large amounts of land dedicated to parks and playgrounds, including the nearly 1,500-acre Wilderness Park, offering plenty of places for families to spend quality time outdoors.

Acres of parkland per 1,000 residents:36.5 (10th highest)
Playgrounds per 1,000 residents: 2.8 (29th highest)
Violent crimes per 1,000 residents: 0.6 (5th lowest)
Unemployment rate: 6.7% (13th lowest)
Adults with at least a high school degree: 95.7% (2nd highest)

Irvine is a perfect city for parents who want their children to enjoy the outdoors. The planned community was developed with a focus on greenbelts, and features many bike paths and parks, including the recently established Orange County Great Park, which is still under construction. Irvine has one of the lowest rates of violent crime among all major cities. Its unemployment rate for 2011 was relatively low, at 6.7%. Like much of Orange County, Irvine suffered far less than other areas from the housing crisis.

Acres of parkland per 1,000 residents:30.8 (14th highest)
Playgrounds per 1,000 residents: 2.2 (49th highest)
Violent crimes per 1,000 residents: 4.1 (24th lowest)
Unemployment rate: 7.2% (17th lowest)
Adults with at least a high school degree: 91.7% (12th highest)

Raleigh is one of the strongest cities in North Carolina, economically speaking. Its high-tech and biotech industries are growing quickly, keeping unemployment low. The city has a top-notch school system that includes the highly ranked Raleigh Charter High School. Children are also surrounded by highly educated adults, as Raleigh was recently named the third-most educated city in the United States by Men's Health. Children have ample opportunities to enjoy activities, especially basketball: The city has one of the highest rates of basketball hoops per resident in the country.

Acres of parkland per 1,000 residents:77.7 (2nd highest)
Playgrounds per 1,000 residents: 5.0 (6th highest)
Violent crimes per 1,000 residents: 1.9 (8th lowest)
Unemployment rate: 6.1% (5th lowest)
Adults with at least a high school degree: 93.1% (5th highest)


Virginia Beach is extremely prosperous, due in large part to the presence of several military bases in the area. It has the eighth-lowest rate of violent crime among major cities and the fifth-lowest unemployment rate. It also has the second-largest acreage of parkland per capita, behind only New Orleans, which has suffered huge population losses in recent years. Virginia Beach also has one of the highest numbers of playgrounds per capita in the country.

Acres of parkland per 1,000 residents:22.3 (22nd highest)
Playgrounds per 1,000 residents: 7.0 (5th highest)
Violent crimes per 1,000 residents: 3.9 (21st lowest)
Unemployment rate: 5.1% (3rd lowest)
Adults with at least a high school degree: (3rd highest)


Madison's economic boom started in the 1990s and has just kept on going, largely avoiding the recent national recession. In 2011, its unemployment rate was 5.1%, far less than the national rate of 8.9%. Among the engines powering the city's economy are the state government, the University of Wisconsin- Madison, and its growing health and biotech industries. Madison is also a great place for recreational activities, with large amounts of land dedicated to public parks. Families can also take part in many water activities, as it borders multiple lakes.

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