U.S. Homeownership and Stock Market Participation Rates

Just a quick post of some interesting date from the U.S. Census Bureau. As shown on the chart above (click for larger image), the percentage of Americans who own their own homes is declining. No surprise there, but it does beg a few questions, such as:

What (and when) was the peak and how far (and how long) will the rate fall?

To consider these questions, I hopped over to this page at U.S. Census Bureau website,  downloaded this spreadsheet and quickly crunched a few numbers in this spreadsheet.

What I found was that…

…the U.S. homeownership rate was pretty stable, at around 64.5%, from the start of this data (by the way, before the grammar police get their panties in a bunch, have a look at this) to 1995, the year after I (randomly and luckily) bought my first piece of real estate.

The homeownership rate peaked at 69.2% in 2004 (the year I sold that same piece of property  — not randomly, but luckily) and now stands at 67.9%, 1.1 percentage points off the high and 3.4 percentage points above the long-term average.

What’s it mean? To state what is hopefully obvious: Millions of people became homeowners who should not have become homeowners. Yes, Virginia, not everybody is qualified to be a homeowner just like not everyone is qualified to enter engineering school.

Sidenote: See Don Dodge’s blog “50% of US engineering students dropout – Why?” and my blunt comment (and Don’s positive reply to it). It was Don’s article that finally got me to get this data and write this blog.  Why?  Because I get the sense that there’s still a lot of people who somehow think that everyone should get to go to college and everyone should get to own a house. That’s simply not true. Everyone should get the OPPORTUNITY to do those things, but in order to actually do them, there are certain qualifying factors, such as intelligence and motivation for college admission and the capacity (and disposition) to repay loans for loan approval (and thus homeownership).

What else those numbers and trends mean? That the “natural” homeownership rate in the U.S. is probably around 64.5% and that the great unwind and deleveraging will continue until we get there (or close to there). I could say more, but I’ll leave it at that because that’s the most important point and leads to all the other implied points. Plus I need to hop in the shower and head out the door for the first-ever Young Entreprenuers of Sweden Kickoff Party at Heaven 23.

Real quick: The U.S. stock market participation rate:

Could there be too many people participating there too?  Unqualified people?  Over-leveraged people (I’ll post some margin debt info soon)?  The answer to those questions should also be obvious.  And the implications too, although I did make a bullish trade on Research In Motion today (short puts).

Anyway, now I really have to run.  I will come back to this topic, and some related ones that are on my mind if/when I have time.  Quite busy with BuzzPal and a side project right now.  In the meantime, here’s a (slightly dated) Investment Company Institute (ICI) and the Securities Industry Association (SIA) press release touting that Half of American Households Own Equities.  Hmmm.


PS: This article (from my friend Steve in London) worth a read: “Ren or Buy? The great British property myth. “Looking at the seven-year periods – from 1993 to 2000, 1995 to 2002, and 2001 to 2008 – we found that, thanks to some big rises in British house prices, a buyer would have been better off, by almost £75,000 in the last case. But take a longer view, from 1980 to 2000 and the picture changes dramatically – renting now comes out cheaper, by about £57,000. So there is nothing special about British property. As with any other investment, if you get your timing right, you will make a profit.” Yes, timing is EVERYTHING!


I decided to continue the conversation with Don in the body of this post.  See the first two comments to this post to pick up the thread.

Hi Don,

First, thanks for pulling those numbers, I was curious about the same thing but didn’t have time last night.

Before we start, we need to remember that, for our purposes anyway, homeownership rates are effects, not causes. Same with housing bubbles, they are caused by certain things, although all asset bubbles, including real estate ones, cause distortions their own markets and in other markets (thus asset bubbles are both effects and causes).

I don’t know if my original post had a main point or was just trying to make an interesting (to me anyway) obseration.  The idea/hypothesis being that a similar set of variables and feedback loops caused the spike in homeownership rates and housing bubbles and (now) that similar spikes and bubbles occurred in multiple countries around the globe (at approximately the same time). We know that housing bubbles occurred (and are now deflating). In fact, the top countries on the international homeownership rate snapshot list you posted are probably generally the countries that had the largest housing bubbles. Those two things, bubbles and participation rates, are related, which should not be surprising.

Back to the numbers you pulled: What I’m more curious about is the next step, which is to graph those country rates over time like we did for the U.S. It’s the shape of the lines we are looking for, not the numbers on them, and especially not just a snapshot of the numbers, which does not let us answer questions such as these:

  • Do other countries show a similar pattern, a baseline then a recent spike in homeownership rates?
  • Where there home-price bubbles in those countries?
  • Do the sizes of those bubbles correlate with the sizes of the spikes in homeownership rates?
  • That kind of thing.

I wish I had the time to delve into those questions, but I don’t right now (too busy with BuzzPal).  If anyone reading this has time, ability, and motiation, please pull the data and make the charts (or pull the data and put it in a spreadsheet for me and I will make the charts).  We want: annual homeownership rates by year from 1965 (or as close as you can get to that year) to present with a 10-year moving average.  We should at least look at the top few countries on the list (maybe I can do those and post them).  The next step is to get and graph the year-over-year rate of change in home prices for the countries.  Best if those two variables are placed on the same graph, with the left y-axis indexed for one variable and and the right y-axis the other.

Regarding the problem “is not the fact that home ownership is particularly high,” you kind of lost me on the word “is,” because there was/is not one problem, but layer upon layer of problem multiplying together. But I’m sure we are on the same page there and you just highlighted one of the prime variables. Agreed.

The engineered products and “profits” enabled the bubbles, but the thing above them is the culture of greed and its own enablers, especially the perverse incentive systems that allowed everybody in the food chain, from the Realtor and loan officer (I know, I used to be one) to the main office and Wall Street guys, to work the system so effectively (for themselves). The ultimate cause, as usual, is human flaws, false beliefs, logical fallacies, etc. The one word root of it all is “greed.”

I’ve written about it on this blog since 2004, for example:

From “Was It All Just a Dream”:

It may take until the next multi-year, multi-point rise in interest rates or the next recession, but sooner or later all those 0% down, interest-only, 40-year adjustable-rate mortgages are going to come home to roost and it’s going to be a rude awakening for all those dreamers who think real estate prices can only go up. What will become abundantly clear in hindsight is the fact that Greenspan didn’t save us from the stock market bubble, but only helped shift the exuberance to the housing bubble, which will have been inflated to the breaking point by the overlapping and self-reinforcing trends of shifting demographics, the swing to adjustable-rate mortgages, ever-falling interest rates, ever-slackening underwriting guidelines, ever smaller down payment requirements, and ever extending maturity dates. Of course making it all possible is mother FannieMae and her foot soldiers (realtors, mortgage loan officers, appraisers, title companies, mortgages insurers, lobbyists, and politicians), who are guided by their own perverse, short-term incentives and will be long gone, commission checks cashed and spent, by the time people realize what happened and how. For a little prologue check out the following article from the most recent Economist magazine.

So what we had was multiple variables driving the bubble, all driven by greed enabled by a system that let players take out “profits” before the chickens came home to roost. The “profits” were privatized, the loses are what remain, and they are being socialized. So what we have effectively done is create the world’s largest and most bizarre socialist system. Nouriel Roubini calls this socialism for the rich, and I agree with him.  See also Cartoon Capitalism, by Bill Bonner.

This “socialism for the rich” thing inspires me for a mini rant: It’s fucked up and people should be protesting it and standing up for each other, for what is right, is the only way, “we” not “me, me, me.”  It reminds me of the famous poem and a famous Martin Luther King, Jr. quote.  I’ll start with the poem, then a modern version, then the MLK quote:

Original: First They Came...:

When the Nazis came for the communists,
I remained silent;
I was not a communist.

When they locked up the social democrats,
I remained silent;
I was not a social democrat.

When they came for the trade unionists,
I did not speak out;
I was not a trade unionist.

When they came for the Jews,
I remained silent;
I was not a Jew.

When they came for me,
there was no one left to speak out.

Modern (American punk rock band NOFX):

First they put away the dealers,
keep our kids safe and off the street.
Then they put away the prostitutes,
keep married men cloistered at home.
Then they shooed away the bums,
then they beat and bashed the queers,
turned away asylum-seekers,
fed us suspicions and fears.
We didn’t raise our voice,
we didn’t make a fuss.
It’s funny there was no one left to notice
when they came for us.

Dr. Martin Luther King, Jr.:

Cowardice asks the question – is it safe? Vanity asks the question – is it popular? Expediency asks the question – is it political? But conscience asks the question – is it right? There comes a time when one must take a position that is neither safe, popular, or political; but because it is right.


BTW, regarding socialism and capitalism, I was born in Washington, DC and lived in the city for most of the next 34 years, earning an MBA from Georgetown and then working in venture finance, then structured finance (not the bad kind!).  In total, over $1 billion in deals before giving it all up to follow my dreams, marry my Swedish girlfriend, and move to Europe in 2006.  Now I’m working on a Web 2.0 startup called BuzzPal – The World Is Your Party! (see also The BuzzPal Blog). We still live in Sweden, but I will be back in DC for Obama’s inauguration (staying in U.S. through May 2nd), then we might move back after the summer (summer in Europe is great!).  [Any prospective partners, team members, people who might want me on their team, etc. should get in touch.  Here is more about me and here is my contact form.] Anyway, my point is that I’ve lived in both one of the world’s most well known capitalist systems and one of its most well known socialist systems. There’s a lot to be said for both systems, and this has been an amazing experience, to see the good and bad of both. It’s gives me lots of ideas for a hybrid system and especially changes for the USA, which basically screws its citizens for money.  Sweden has an amazing system, though not perfect, of course (no system is).

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6 thoughts on “U.S. Homeownership and Stock Market Participation Rates

  1. Chris, Interesting numbers. It is stunning to note that this housing credit crisis was the result of a change of less than 5% in home ownership (64.5% to 69.2%).

    This is a “right” versus “privilege” thing. It is not a god given “right” to go to college or own a house. It takes hard work. The opportunity is there for anyone, but it takes hard work to prepapre for college, and hard work to earn the money necessary to pay for a house.

    I am now curious about home ownership rates in other countries. I wonder if 65% is high or low compared to other countries.

  2. OK, I couldn’t resist…I looked it up and here are home ownership rates for the US and other European countries as of 2003. Source is Eurostat. Found on Photius.com

    Rank Country % Homeowners

    1. Spain 85.3
    2. Greece 83.6
    3. Italy 75.5
    4. Belgium 72.9
    5. Luxembourg 70.8
    6. United Kingdom 70.6
    7. United States 67.5
    8. Portugal 65.0
    9. Denmark 65.0
    10. France 62.7
    11. Sweden 59.9
    12. Netherlands 54.4

    So, it is not the fact that home ownership is particularly high in the USA, and I suspect not that defaults were so high. The real problem was the financial leverage and derivatives the banks employed to “engineer” profits that weren’t really there.

  3. From the Economist:

    Global house prices
    Popping sounds
    Dec 4th 2008

    House prices are falling just about everywhere

    “WHAT happens here, stays here” is a slogan used to attract tourists to Las Vegas. Sadly, it is not true of the state of the city’s housing market. In September, they were 31.3% lower than a year ago, according to an S&P/Case-Shiller index of American house prices, and Vegas’s problems are now spreading all over the world. According to our house-price indicators (see chart), America’s housing market is leading the way down for the 20 countries covered. But the situation is even worse than it appears. Compared with the second quarter, prices fell in 11 of the 16 countries for which third-quarter data are available. Research suggests that a long, global slump lies ahead.

    In America, the collapse is striking both for its severity and its breadth: home prices fell in every city covered by Case-Shiller’s 20-city composite index in September. On a more positive note, America’s Mortgage Bankers Association said on December 3rd that home-loan applications, which are an early indication of demand for housing, surged at the end of November. This followed a fall in long-term rates after the Federal Reserve pledged to buy up to $500 billion of mortgage-backed securities issued by government-sponsored entities such as Fannie Mae and Freddie Mac, and $100 billion of their debt. However, many such loan applications are turned down, especially in tough economic times.

    For an indication of how far the downturn has spread, look at China. House prices are still slightly higher than they were a year ago, but in the third quarter they fell. In big cities, the picture is even worse. Shanghai’s house prices fell by 19.5% in the third quarter, says Savills, a global property company. Construction of homes, offices and factories fell by 16.6% in October, according to Macquarie Securities. The firm expects construction activity to slump 30% in 2009, after a 9% expansion in the first nine months of this year.

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