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The American Dream: Does It Still Include Owning a Home?

Even after a devastating housing and mortgage crash, the majority of Americans have not given up the idea that home ownership represents their economic dream.
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Maybe not the picket fence, but definitely the house.

Even after a devastating housing and mortgage crash that resulted in millions of foreclosures and trillions of dollars of home equity lost, the majority of Americans have not given up the idea that home ownership represents their economic dream.

"Americans continue to want to be homeowners and they want to do it in a more careful and responsible way given the crisis that we've been through, but there is no evidence that we're going to abandon the home ownership society," Housing and Urban Development Secretary Shaun Donovan said in an interview.

Seventy percent of respondents to a monthly Fannie Mae survey in January said they would buy if they were going to move, an all-time survey high.

"The aspiration to own a home is unchanged," said Doug Duncan, Fannie Mae's chief economist. "Changing the rules of funding makes it harder or easier, and that's a little bit of what's going on today, but the aspiration is unchanged. That has been consistent across the crisis."

Prior to the housing boom, presidents Reagan, Clinton and George W. Bush touted the "home ownership society." They have been accused of pushing mortgage giants Fannie Mae and Freddie Mac as well as the FHA, the government mortgage insurer, to loosen their underwriting standards. The result of that push, critics say, was the over-leveraging of the American public.

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Today, underwriting is tighter than during the housing boom. Some claim the pendulum has swung too far the other way, keeping potential buyers out of home ownership. The political mantra, as well, has changed.

"A home is supposed to be our ultimate evidence that in America, hard work pays off, and responsibility is rewarded," President Barack Obama said last August. He stopped short, however, of calling for a home ownership society, and in fact warned against a return to the past. "In the runup to the crisis, banks and the government too often made everyone feel like they had to own a home, even if they weren't ready. That's a mistake we shouldn't repeat."

Home ownership -- measured as a percentage of the total number of occupied units -- rose to a high of just over 69 percent during the housing boom after averaging around 65 percent for much of the previous decade, according to U.S. census data. It has been falling steadily since, now down to 65.2 percent.

As housing recovers, the biggest question for the next 25 years is not do we want to own a home, but how will we own a home?

"Will we build a housing finance system that supports that home ownership society or not?" asked HUD's Donovan.

There is now one leading bill in Congress that would dismantle Fannie Mae and Freddie Mac, which have been under government conservatorship since September 2008. It would leave a limited government backstop, much like the FDIC, but put the mortgage business largely into the hands of private investors, which is where it was during the housing boom.

Private investors have been extremely leery of dipping back into the mortgage business, and have only done so in limited, highly rated offerings.

The housing finance system envisioned by the administration would require that the secondary market help provide liquidity to all segments of the primary market. Separately, it must also support affordable housing through its basic design, augmented by an explicit and transparent affordable housing funding mechanism.

Twenty-five years from now one would hope and expect that a new mortgage system would be in place. Some argue, however, that the housing crisis, combined with changes in social behavior, have altered for good the expectation and desire for home ownership. A new single-family rental market, 15 million homes strong, grew out of the crisis, and it is backed by large scale, institutional investors who claim they are in this new asset class permanently.

"As institutional ownership with its substantial equity capital and professional management provides increasingly attractive rental options in suburban America, we believe the demand for rental housing will grow—not as a transitional, substandard or second-class alternative to home ownership—but as a preferred option to the financial and often inflexible demands of home ownership," said Laurie Hawkes, president and chief operating officer of American Residential Properties, a single-family rental REIT based in Phoenix.

Donovan disagreed that renting would remain as high as it is today. "There have been some institutional improvements in management and other things, but in terms of fundamental demand, I would be surprised if it really becomes, in the scope of our larger housing market, a major change 10, 15, 25 years from now."

Hawkes, who watched the single family rental market grow from 10 million to 15 million homes in a remarkably short period, argues that renters are middle class families with kids and a dog, who are looking for the same thing that home buyers are, minus the stress.

"There is also a growing group of Americans, such as the millennials, who are choosing to rent for a variety of reasons—financial flexibility, job mobility and a decided preference for 'outsourced' property maintenance. Both of these groups are seeking well-located, well-maintained single-family housing with good school systems in safe neighborhoods," said Hawkes.

Fannie Mae's Duncan conducts monthly surveys on home ownership, and disagrees with Hawkes' premise.

"The stigma related to renting has gone away, but we don't see any change in their aspiration to own a home at some point," he said.