NEW YORK (CNNMoney) — As the foreclosure crisis continues to wreak havoc on the housing market, a source of national pride has taken a sour turn. Home ownership is on the decline and, according to a recent Morgan Stanley report, the United States is fast becoming a nation of renters.

Last Friday, the Census Bureau reported that the percentage of people who owned a home had dropped to 65.9% during the second quarter — its lowest level since the first quarter of 1998 and a far cry from the high of 69.2% reached in late 2004.

Yet, in a research paper issued a week earlier, Morgan Stanley (MS, Fortune 500) analysts Oliver Chang, Vishwanath Tirupattur and James Egan argued that the home ownership rate is even lower than the Census Bureau statistics say.

In fact, once they factored in delinquent mortgage borrowers (the ones who are likely to lose their homes at some point), Morgan Stanley calculated that the home ownership rate is more like 59.2%.

That’s the lowest level since the Census Bureau started keeping quarterly records back in 1965 (before that, it recorded home ownership rates once a decade). The Census Bureau’s statistics, however, do not factor in mortgage delinquencies.

Responsible homeowners left out in the cold

“The combination of falling home prices, limited mortgage credit, continued liquidations, and better rental options is fundamentally changing the way Americans live,” the analysts said. “We believe this change is only beginning and is moving the country towards becoming a rentership society.”

Many people are still technically considered homeowners who occupy their homes, even though they no longer make their mortgage payments. These “homeowners” can squat for months or even years, because banks have been slow to process foreclosures in recent months.

In addition to the millions of people who have lost their homes to foreclosure, Morgan Stanley said that another reason for the decline in home ownership is that many of the people who would like to buy homes can’t get a mortgage.

The private mortgage market has dried up and even the government-supported organizations, like Fannie Mae and Freddie Mac, have tightened their underwriting standards.

“For the first time in recent history, the government is no longer promoting home ownership for all Americans, leading to a reconsideration of housing-related public policy,” said the Morgan Stanley paper.

Obama’s housing scorecard

In a February housing finance report, the Obama administration stated that its goal was to “ensure that Americans have access to an adequate range of affordable housing options. This does not mean our goal is for all Americans to be homeowners.”

Fannie and Freddie have already made it more expensive for riskier home buyers to borrow and, starting Oct. 1, the mortgage giants will reduce the maximum amounts they will lend in high-cost areas. The government wants to encourage private capital to fill the gap but, currently, Fannie and Freddie, along with loans from the Federal Housing Authority, account for about 90% of all mortgage lending these days.

Ken Johnson, a professor of real estate at Florida International University, who co-authored a recent paper with Eli Beracha of East Carolina University about how home buying is now a better choice for most Americans, said he doubts that home ownership will fall much further below current levels.

Johnson thinks the market has already hit bottom and home prices should start appreciating, albeit slowly, this year. In addition, with such favorable interest rates and good deals on homes, it’s hard for potential buyers to resist taking advantage of the opportunity for too much longer.

Prices have dipped 32% since they peaked in mid-2006 and interest rates on mortgages, if you can get one, are at or near historic lows. On Thursday, LendingTree reported that rates for a 30-year, fixed-rate loan reached a record low during the day: 4%.

The dip in home ownership has done more than just line the pockets of landlords. It has also created a base of Americans with no home to rely on in times of financial need. Millions of owners can tap into their home’s equity in times of financial stress or to pay for cars, college tuition or other major expenses.

Are you on track for retirement?

Paying for a home is also a type of “forced savings,” said David Crowe, chief economist for the National Association of Home Builders. He explained that, after interest, mortgage payments go toward paying down the loan balance — and for homeowners who end up in the right type of loan the ending balance can be significant.

There are also less tangible benefits to home ownership. An increase in home ownership overall tends to improve community stability, according to “The Social Benefits of Homeownership and Stable Housing,” a report released last year by the National Association of Realtors (NAR).

In the paper, NAR cited several academic studies that found that children of homeowners have greater academic achievement than children of renters, that homeowners vote more and volunteer their participation in more community events than renters and that communities are better maintained and safer in neighborhoods with high ownership rates.

Winners of the rental economy

On the other hand, there are a few benefits to renting. Renters are much more mobile: They can move to take a better job if the opportunity arises.

And, more often than not, renting is cheaper than buying. If renters are disciplined about investing those savings, they can come out with more wealth than buyers.

Plus, renters don’t lose their shirts in housing busts.

“Often maligned as a product on which you ‘throw your money away,’ rentals have become a much more valued housing option,” said the Morgan Stanley authors.

Home prices in major U.S. cities have risen for the first time in eight months, perhaps boosted by an annual flurry of spring buyers.

The Standard & Poor’s/Case-Shiller home-price index reported Tuesday that prices rose in 13 of the 20 cities tracked. Washington, D.C., saw the biggest price increase, followed by San Francisco, Atlanta and Seattle.

Still, six metro areas are at their lowest levels in nearly four years. Those markets are: Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa.

Last month, home prices in big metro areas sunk to their lowest since 2002. Since the bubble burst in 2006, prices have fallen more than they did during the Great Depression.
The index, which covers metro areas that include about 50 percent of U.S. households, rose 0.7 percent, the first increase since July. The index measures sales of select homes in those cities compared with prices in January 2000 and provides a three-month average price. The April data is the latest available.

David M. Blitzer, chairman of Standard & Poor’s index committee, cautioned that while the price index increase was a “welcome shift from recent months,” much of the improvement was likely because of the beginning of the traditionally busy spring and summer home buying seasons.

A delay in processing foreclosures is also a factor. Homes in foreclosure sell at a 20 percent discount on average, which can hurt prices in neighborhoods. But many foreclosures have been delayed while federal regulators, state attorneys general and banks review how those foreclosures were carried out over the past two years.

Source: www.realestate.aol.com

More than half of U.S. adults surveyed think the housing market won’t bounce back until 2014 or later, reports Inman News. But for some people, even the promise of a real estate recovery might not be enough to entice them to take the plunge and become homeowners: 40 percent of renters surveyed said they will never buy a home. Inman News has the full story.

With home prices threatening to double-dip nationwide, most consumers don’t expect a housing recovery in the near term, according to a survey from property search and marketing site Trulia and foreclosure data site RealtyTrac.

Market research firm Harris Interactive conducted an online survey on behalf of the sites from April 15-19, 2011. The survey garnered 2,018 responses from U.S. adults — 1,257 were homeowners, 704 were renters, and 57 identified themselves as neither. More than half of respondents, 54 percent, believe the housing market won’t recover until 2014 or later, up from 34 percent in a similar survey in November 2010.

While many experts predicted an improvement in the housing market this year, “We’re actually backtracking,” said Pete Flint, Trulia’s CEO.

“Foreclosures still continue to be a major part of the housing market, and as a result housing prices continue to drop. Even with mortgage rates still below 5 percent, the fact is, against a backdrop of joblessness, (even high affordability has) made consumers more skeptical where the housing market is concerned.”

For instance, renters who were interested in buying a home said they would wait two years before doing so, Flint said.

He predicted it would be another 18 months before home prices begin to stabilize.

“I expect the rest of 2011 to continue to be volatile,” he said. “Buyers can anticipate a big summer clearance on real estate,” he added.

Rick Sharga, senior vice president of RealtyTrac, expects prices to bottom this year.

“We’re not expecting a bounce off that bottom. (Prices will) flat-line there for the next couple of years and (we won’t see) prices increasing in any real manner until, best-case scenario, 2014,” Sharga said.

While most survey respondents also chose 2014 as the light at the end of the tunnel for the housing market, 24 percent of respondents — the same share as in the November survey — believe the market will recover in 2013. Some 15 percent of respondents say the market will recover in 2012, down from 27 percent six months ago.

Three percent think the market will recover at the end of this year, down from 10 percent six months ago. The same share, 5 percent, thought the market had already recovered.

Neither Flint nor Sharga believed the possibility that the mortgage interest deduction would be eliminated was keeping buyers away from the market.

Nevertheless, about 40 percent of surveyed renters said they won’t ever buy a home. “That suggests that it’s really a bad time to take away the incentives for people to buy homes,” Sharga said.

Read the full story at Inman News.

As the housing market continues to take a beating – new data out this week shows home prices continuing to fall in nearly every major metro area – homebuyers need to evaluate their decisions more carefully than ever. In such a soft market, you may be stuck with your choice for a long time, and mistakes can be more costly than ever. Our sister site DailyFinance offers some help for homebuyers in the form of three essential questions you need to ask before making a decision.

It’s a brave new world in the U.S. housing market — one in which many of the old familiar norms have come into question.

To say that the current housing market is likely to punish those who don’t painstakingly evaluate their decision to buy a home would be an understatement. In most parts of the country, there’s no strong tailwind of buyer demand to provide a safety net against home purchase mistakes. With all that in mind, here are three questions that prospective homebuyers would be wise to incorporate into their evaluation process.
1. Are you prepared to own the house for five to seven years?

The housing bubble is long since gone, and with it, the old idea that you could count on a 5% to 10% average annual appreciation in your home’s value. Today, that only applies in a few high-demand niche markets. That means if you have to move again in a few years, you’re probably going to pay a high transaction cost. Between the costs of selling, and the possibility of a decline in value of your home, or a minimal increase, you may end up netting less money than your outstanding mortgage principal.

Read the full story at DailyFinance.

Almost five years after home prices peaked, they’re still moving in the wrong direction.

Home values fell 3 percent during the first three months of this year, for the biggest quarterly drop since 2008, according to a new report from data provider Zillow. Even as the stock market climbs to three-year highs, and as payrolls tentatively expand, housing continues to fall in almost every U.S. metro area. Prices won’t find a bottom until 2012 at the soonest, Zillow predicts, meaning American homeowners could be in for at least another year of pain.

“Home value declines are currently equal to those we experienced during the darkest days of the housing recession,” Zillow chief economist Stan Humphries said in a statement. “With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011.”

Read the full story at The Huffington Post.