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Own a home? Rate of those who do leveling off

After climbing steadily for a decade, the nation's homeownership rate appears to have leveled off.

New data released late last month by the U.S. Census Bureau put the homeownership rate at 69 percent in the fourth quarter of 2005, down from 69.2 percent a year earlier.

Although the decline is too small to be considered statistically significant, it is the third quarter in a row that the rate hasn't posted a year-over-year gain _ and it's the first time since 1994 that the rate at year-end hasn't increased from the previous year.

It's not entirely clear why the homeownership rate seems to have plateaued. Some economists say the data could be a sign that declining affordability is finally taking its toll on first-time homebuyers. Other possible explanations include economic weakness in the Midwest, where the drop in the rate is sharpest (down to 72.8 percent in the fourth quarter from 73.7 percent a year earlier), and demographic shifts.

The portion of U.S. population who own homes began climbing in the mid 1990s, propelled by moderate interest rates and strong economic growth. It has continued to move higher, bolstered by low interest rates, creative mortgage financing and the desire of many Americans to get in on the housing boom. The homeownership rate reached a record of 69.2 percent in the second quarter of 2004, up from 63.8 percent a decade earlier. Since then, it has edged sideways.

"You've got seven quarters in which the homeownership rate basically has done nothing," said Jan Hatzius, chief U.S. economist for Goldman Sachs. "It's fair to say that it's stagnating."

At the same time, home prices have surged. The median price for an existing single-family home was $213,000 in the fourth quarter, up 13.6 percent from a year earlier, though home-price growth cooled somewhat in the fourth quarter, the National Association of Realtors said Wednesday. A record 72 of 145 metro areas showed double-digit annual increases in median prices for existing single-family homes.

Economists say it will take several more quarters to determine whether the homeownership rate has peaked or temporarily stalled. Because the Census Bureau estimates are based on a monthly survey of roughly 61,000 occupied homes, there's the possibility of a sampling error. And even if the homeownership rate has flattened, the number of homeowners is increasing because of population growth.

Still, the latest numbers come at a time when rising home prices and higher mortgage rates are making it tough for many homebuyers.

The National Association of Realtors' Affordability Index stands at 115.8, the lowest level since the third quarter of 1991. When the index stands at 100, a family earning the median income has just enough money to afford the median-priced home, assuming a 20 percent down payment and current interest rates.

"In some parts of the country, affordability has fallen to levels we have not seen in 20 years," said David Berson, chief economist at mortgage giant Fannie Mae.

As prices climb, some buyers have trouble coming up with money for a down payment. Others lose out because home prices are rising faster than their incomes.

There may be other explanations for the flattening of the homeownership rate.

Job losses and weak economic growth in the Midwest may play a major role, said Eric Belsky, executive director of the Joint Center for Housing Studies at Harvard University. And, as the economy expands, some people are moving to the South and West to take advantage of job opportunities, he said. Some of these people may decide initially to rent rather than buy, even if they can afford a home.

Demographic factors may be a factor. Baby boomers are nearing the age where their homeownership rate peaks, said Doug Duncan, chief economist of the Mortgage Bankers Association. And recent immigrants are less likely to own homes.

Renting can be a wiser choice than owning for many people, including those of limited means and people who expect to move shortly. There are signs that rising home prices may be leading some to choose renting over buying. The rental vacancy rate declined to 9.6 percent in the fourth quarter, compared with 10 percent at the end of last year and a high of 10.4 percent in the first quarter of 2004, the Census Bureau said.

The growth in second homes could play a role, some economists say. Buyers of second homes accounted for 7.35 percent of mortgages to buy homes through October, LoanPerformance said.

STAGNATING HOMEOWNERSHIP

Possible reasons why the rate

is stagnating:

Declining housing affordability

Weak economic growth in the Midwest

Demographic shifts, such as immigration and the aging of baby boomers

_ WALL STREET JOURNAL

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