The end of the Home Buyer Tax Credit | U.S. home ownership rates
Almost three quarters of American adults are pursuing the “American Dream” of home ownership. Home ownership is currently pretty high compared to past decades despite the economic down turn. Getting job security back under control will have a huge impact on persuading more Americans to jump back into the home buying game.
Why a healthy U.S. economy usually includes high levels of home ownership
As of the last full year of available numbers, which was in 2009, 67.3 percent of American adults are either paying off a mortgage or have reached their goal of full home ownership with a fully paid off mortgage contract (3). Why then are statistics such as home ownership rates so important in terms of the determining the health of the greater United States economy? That is because an increase or a decrease in home ownership rates indicates how banks are lending, not just for home loans, but also for small business, auto finance, home improvement loans and even short term loans for bad credit.
A healthy economy can be reflected by reasonable interest rates that reward savings and investment as well as a small number of citizen consumers that are unemployed. All this leads to more purchasing in the economy and more production, and the cycle continues from there. This then essentially leads to higher economic growth. If most of these positive factors are in play in the U.S. economy, then there is usually an increase in home ownership numbers. The more confident citizens are that their jobs are secure, the more willing they are to invest in home ownership.
The Home Buyer Tax Credit of 2009
In 2009 the U.S. House of Representatives, the Senate and the president passed and signed into law the “Worker, Home ownership and Business Assistance Act of 2009.” In this act, the “first time home buyer tax credit” of $8,000 was extended until April of 2010 (1).
The end of these important tax credits combined with the weak balance sheets of many of the nation’s banks, along with high unemployment, has caused most economic analysts to predict weakness in future home construction, after the tax credits ceased at the end of April of 2010. This, in fact, seems to have come true to everyone’s dismay.
New home construction peaks and valleys
The peak in new U.S. home construction came in January of 2006, and it has plummeted 70 percent since reaching that peak. But it is now more than 40 percent above the point when home construction was at its lowest in April of 2009 (2). Since 1969, the percentage of American citizens buying a home has averaged from 64 to more than 68 percent. During the decade of 1969-1979, home ownership levels reached a low of 64.25 percent in 1971, and a high of 65.55 percent in 1979. In 1980 that number grew to 65.57 percent. Eight years later, in 1988, home ownership reached a low of 63.8 percent during the aftermath of the 1987 stock market crash and the Savings & Loan banking disaster.
The decade of the 1990s saw a steady and continual climb in home ownership, without any decline in ownership rates. U.S. home ownership during that decade reached its low in 1990 at 63.95 percent, and a high of 66.8 percent in 1999. This steady climb continued into the first decade following the year 2000, with the peak for U.S. home ownership arriving in 2004 at 69 percent and the lowest point being reached in 2009 at 67.3 percent (3).
A Steady Increase in home ownership, but are there problems on the horizon?
From breaking down these statistics, it can be seen that there has been a steady increase in the percentage of Americans choosing home ownership. The average in the 1970s was 64.6 percent; in the 1980s it was 64.4 percent; it was 64.8 percent in the 1990s, and in the 2000s, it jumped to 68.1 percent of Americans choosing to buy single family homes (3).
One important issue to explore is whether Americans are able to buy single family housing, priced at a reasonable percentage of their income, or whether speculation in real estate from Wall Street will make home ownership a fading memory for most Americans.
- “Worker, Home ownership, and Business Assistance Act of 2009.”
- “Housing may not aid upturn”. USA Today. May 19 2010. Pg 3B.
- “Housing Vacancies and Home ownership (CPS/HVS) First Quarter 2010
Table 5. Home ownership Rates for the United States: 1968 to 2010.”