Homeownership: (Millennials) Downsizing The American Dream

The recession and housing crash have triggered a sharp decline in the share of American households living in their own home. Homeownership, now at its lowest point in 15 years, is bound to fall even further, driven by tight credit, lackluster economic growth and more foreclosures.

Declining homeownership rates suggest some Americans are beginning to doubt that homeownership remains part of the American dream -- or at least, an attainable part of it.

A recent survey by real estate search and marketing site Trulia asks respondents whether they view homeownership as part of their personal American Dream and the share of respondents answering in the affirmative have fallen from 77 percent to 72 percent between 2010 and 2012.

U.S. homeownership fell in the first three months of 2012 to 65.4 percent, according to the latest Census Bureau figures. The last time the rate hit 65.4 percent was in the first quarter of 1997. The rate peaked at 69.2 percent in the fourth quarter of 2004, during the high-flying days of the housing boom. Data for the second quarter will be released next week.

Paul Diggle, property economist at Capital Economics, predicts that the homeownership rate could drop even further, to around 64 percent by 2015 and 60 percent by 2020. A homeownership rate of 60 percent or less would be the lowest since Census Bureau began tracking the data in 1960.

The collapsed home-price bubble might have turned an entire generation of would-be homeowners into perma-renters. The millennials -- people aged 25 to 34 -- are tagged by economists as the Lost Generation.

First-time home buyers -- the bulk of which are under 35 years of age -- now only account for roughly 30 percent of home sales, down from as high as 50 percent in 2009.

A recent study by the John Burns Real Estate Consulting firm predicts the homeownership rate for 25 to 34 year olds will continue to fall through 2015.

Subsequently, the study anticipates over 8 million renter households will be added from 2010 to 2015, more than double the amount of renters added from 2000 to 2010.

A Pew Research Center analysis of U.S. census data found that the share of Americans living in multigenerational households is at its highest level since the 1950s.

Overall, 41 percent of adults ages 25 to 29 currently live with or have moved back in with their parents temporarily because of the economy, and 17 percent of 30 to 34 year olds also fall into this category.

Losing young home buyers can be very damaging to an economy that is still struggling to recover from the 2008 financial crisis. Housing contributes about 18 percent to U.S. gross domestic product. Historically, residential investment has averaged roughly 5 percent of GDP while housing services have averaged between 12 percent and 13 percent.

Stifling student loan debt, high unemployment rate and low entry level wages have made owning a home impossible for young Americans.

The unemployment rate for millennials was 8.2 percent in June, identical to the overall national rate. For those who are currently employed, they generally star their career with salaries around $30,000. Meanwhile, the median price for a single-family home was $234.500 in May, according to a report by the National Association of Realtors.

Meanwhile, declining home prices have made it more difficult for parents to tap into home equity to help their grown children out. Median household net worth took a 35 percent dive from 2005 to 2010, the Census Bureau reported in June. That's a slide to $66,740, from $102,844 in 2010 constant dollars.

To make matters worse, many overly indebted recent grads are unable to qualify for mortgages - even if they are at record-low levels.

Since 2003, student loan debt has nearly tripled from $293 billion to an eye-popping $904 billion, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit. The figure jumped $30 billion in the first quarter of 2012 alone. In contrast, all other forms of consumer debt have seen sharp declines, with a total $1.53 trillion reduction.

The Consumer Financial Protection Bureau estimates that there's $550 billion more in private student loans outstanding.

Even at $1 trillion, outstanding student loans equate to roughly 6.5 percent of U.S. GDP. To put this in perspective, U.S. student indebtedness now exceeds the GDP for all but 15 of the 192 countries tracked by the World Bank.

A separate study released by the Federal Reserve Bank of New York on Tuesday showed the average loan balance for U.S. college students has increased 55 percent to $24,301 since 2005, while the number of student loan borrowers increased 59 percent to 37.1 million in the first quarter from the same period seven years ago.

The state of young Americans' financial situation is downright scary.

Thus, it's not surprising to find that these economically pressed young would-be home owners are doubling up in houses and apartments, according to a Census Bureau report released in June.

A 2012 study by Harvard's Joint Center for Housing Studies found that there are 1.3 million fewer occupied homes in the U.S. than there would have been had Americans continued forming households at the rate they did before the recession. Household formation rate has been running at its lowest levels since the 1940s.

Then, we come to foreclosures.

The second quarter of 2012 saw the first year-over-year increase in quarterly foreclosure starts since the fourth quarter of 2009, according to the latest report from market researcher RealtyTrac.

During the quarter, 311,010 properties started the foreclosure process. That's a 9 percent increase from the prior quarter and a 6 percent jump from the year-ago period.

Capital Economics Property Economist Paul Diggle predicted in a note to clients that up to 1.7 million households may succumb to foreclosure over the next few years, most of whom will return to rented accommodation.

Beyond the two-to-three year horizon, however, there are grounds to think that the homeownership rate will stabilize or even edge up again, Diggle wrote. Credit conditions will eventually see a more material easing, consumers' credit scores will rise alongside an improving economy and the number of foreclosures will fall.