Could a lost decade in homeownership be healthy for the housing market? This week’s article discusses this very question. Also covered is an update on the multi-family sector, an update on interest rates, mortgage applications, and the National Association of Realtor’s Pending Home Sales Index. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Homeownership: Officially a Lost Decade The Census Bureau reported another decline in homeownership, leaving the rate at levels not seen since 1999. The rate declined from 67.6% (Q3 2009) to 66.9% in Q3 2010, leaving the 2000’s a lost decade for home ownership gains. Home ownership rates peaked in Q1 2005 at 69.1%. On a side note the Census Bureau also reported that rental vacancies declined from 11.1% (Q3 2009) to 10.3% Q3 2010. While the drop in home ownership is startling, it still has further to drop. From 1985 to 1995 home ownership was roughly 64%. This was a more manageable time before toxic sub-prime loans and the push that every American should own a home. I think we’ll continue to see this number fall from current levels and stabilize in the 65% range by 2015. 30-Year Mortgage Rate Drifts Up for 3 The 30-year fixed mortgage rate moved .01% higher over the last week to 4.24%, up from 4.23% last week, according to Freddie Mac’s most recent interest rate survey. The 15-year loan dropped to 3.63% from 3.66% last week, leaving a mixed picture on interest rates. Over the last year the 30-year fixed remains down significantly from 4.98%. The current low 30-year rate had little reason to increase more than marginally after core prices showed inflation at its lowest since 2001. While the Fed continues to push for an extended low interest rates through QE2, rates shouldn’t move much over the rest of the year. This means investors should have a continued opportunity to take advantage of a combination of low home prices and rates. Mortgage Applications Mixed The Mortgage Bankers Association reported that its Market Composite Index decreased 5% over the last week, lead by a drop in refinance activity. The Refinance Index dropped 6.4%, while the Purchase Index increased 0.2% in the same period. The 4-week moving average is relatively flat (up 0.1%). From here, we’re likely to see sideways movement in the index or slight increases. While a foundation of improved market fundamentals is being developed, the expectation to see this index show big improvements is minimal over the next few months. Apartment Market Conditions Show Improvement Market conditions are improving according to the National Multi Housing Council’s latest Survey of Apartment Market Conditions. The quarterly survey covers categories such as; market tightness, sales volume, equity financing, and debt financing. Over 70% of respondents disclosed that sales were higher than 3 months ago, while 60% reported that the apartment market was tighter than 3 months ago. With regards to financing, 43% said financing was more available now than 3 months ago and 47% said it remained unchanged. As far as conditions of borrowing were concerned, 64% thought it to be better than 3 months ago. This points to further signs that the housing market is recovering. Industry professionals are getting more confident about the market because real dollars are being borrowed once again in the financing markets, properties are being leased, and buildings being sold. Many indicators judge the health of the market simply on home prices rising. I feel the indicators showing a bottom is being formed with downside resistance is critical to bring to the surface. Pending Home Sales Off The National Association of Realtors announced that its Pending Home Sales Index dropped 1.8% in September from August and remains down 24.9% from September 2009. The high numbers in September 2009 was from the first-time buyer credit, so its not the best comparison. Regional pending home sales were as follows; the West (up 3.5%), followed by the Northeast (-1.7%), the South (-3.5%), and lastly the Midwest (-5.7%). Pending home sales are still much improved over the last few months. We can expect to see some declines on the road to a housing recovery. Lawrence Yun, chief economist for the Realtors, felt that unemployment wouldn’t return to normal (6%) until 2018. While a full recovery in employment might be 5 years away, housing prices may take longer. We should see all of the excess inventories worked off in 5 years less and home sales numbers returning to normal. Prices will follow those indicators. Forward Thinking The upcoming year will show us more inventory reduction, prices similar 12 months from now to where they are today, but interest rates 0.5% or more higher. Vacancy rates will likely improve as limited new home construction will leave rental markets getting tighter and ultimately rents rising in higher demand areas. This is already happening in many areas. The data points to us being better off today in most areas of the housing market than 6 months ago. Photo: Lindsey T.