For Middle-Class Families, Dream of Own House Drowns in Sea of Debt

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On Friday, May 13, 2005, President Bush will address the National Association of Realtors in Washington. The president often cites increased home ownership rates as a key component of his “ownership society” and also as an economic bright spot amid a labor market that continues to struggle in finding its foothold. However, a closer look at the housing market exposes the soft underbelly of our economy and shows disturbing new trends that raise doubts about how beneficial the housing market really has been for America’s middle-class families:

KEY FINDINGS

• The Increase in Home Ownership is Slowing as Housing Costs Increase.
The rise in home ownership rates that began in the mid-1990s has slowed markedly since early 2001, especially for African-Americans.

• Americans Are Borrowing More Than Ever Against Their Homes to Pay Other Expenses, Reinvesting Less Back Into Their Home Equity.
Households have relied more heavily than ever before on borrowing against the equity in their homes to help them pay their bills. This additional borrowing has allowed families to deal with skyrocketing costs such as health care and education during a period of stagnant labor market and wage growth.

• Families Own Less of Their Own Homes Than Ever Before.
During this business cycle, families have owned the smallest share of their own homes since the 1950s. Rapidly rising home values were outpaced by even faster growing debt.

• Historic Increase in Mortgage Debt a Growing Factor in Historically High Personal Bankruptcies.
Mortgage debt has risen higher and faster than ever before during a business cycle, contributing to the economic distress of many families, reflected in record personal bankruptcy rates.

• Historically Low Interest Rates Not Offsetting the Historically High Borrowing.
Although historically low interest rates have helped increase home ownership, the historic level of borrowing more than offsets any gains made by the low interest rates.

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