It won’t be easy street in the home real estate market anytime soon.

Sinking home prices leading to lower home ownership rates in the USAIt’s official: Average U.S. home prices have now “achieved” quite a milestone. They’re right back down to where they were in 2003.

In other words, eight years and a ton of turbulence later, we’re back where we started on home prices. Talk about a nothing-doing return on investment!

But for many homebuyers it’s far worse than an investment with zero return … what’s happened is hardly the same thing as keeping money in a savings account in the bank at a puny 0.5% annual interest. Because as we all know, over this period home prices peaked, then plummeted.

Unfortunately, those who chose to jump in during the midst of the homebuying frenzy find themselves underwater in a big way with those mortgages.

This negative equity phenomenon is a huge issue, according to industry experts. In fact, business intelligence and analytics company CoreLogic is reporting that nearly one in four mortgages is now in a negative equity situation.

Mark Fleming, CoreLogic’s chief economist, goes even further. “It’s not just negative equity that we … focus on, but it’s also insufficient equity. All the people who have those primary loans that are somewhere between 80% and 100% LTV [loan-to-value] also basically don’t have access to the credit markets.”

The vast majority of homeowners who are underwater with their mortgages are continuing to pay on them. So far, so good. But the problem is that most of these owners are really underwater – to the tune of 30% or more based on the latest home value appraisals.

Here’s the stark truth: These owners will be stuck with their homes for years and years … and unable to sell them unless they’re willing to take a big loss. Given the precarious state of family finances in many households, that’s an unrealistic option at best.

It’s also a recipe for housing industry stagnation as far as the eye can see.

What’s the end-game in all of this? Most likely, negative equity is going to get worse before it gets better, as home prices will continue to stagnate – or even fall further in value in some markets.

An interesting parallel to this is the effect the residential real estate doldrums have on consumer psychographics. As people hear never-ending negative news stories and continue to view real estate as a problematic investment, these impressions are only magnified.

At some point, we get to a place where it will take years for those consumer attitudes to change. 2011’s third quarter average home prices reportedly dropped ~4% compared to the same period in 2010, thus continuing the ugly cycle of consumer retrenchment and lower home values. So much for the “hyped and hoped-for” housing recovery.

And what about consumers who may be thinking about becoming homeowners for the first time? Clearly, they’re not fools. Most will wait until the market has truly bottomed out before they jump in.

… Which leads us to this revelation: Not only are housing prices right back where they were in 2003, home ownership rates in the United States are now down to their lowest percentage level since before the U.S. Census Bureau began tracking this statistic back in 1963.

That is correct. After having reached a high of ~70% of the adult U.S. population in 2005, industry watchers like John Burns Real Estate Consulting are predicting that home ownership rates will fall to ~62% by 2015.

So much for attaining the “ownership society” preached by politicians throughout the 1990s and 2000s. But hey, at least a lot of people got a bunch of fee-based income from all the flurry of the real estate transactions …

Yep. “Paper entrepreneurship” at its finest. Too bad it’s all so ephemeral.

The Residential Real Estate Market: Still in the Dumper

Home Foreclosures
U.S. home foreclosures set a record in 2009 ... and are on their way to being even higher in 2010.
When it comes to the U.S. residential real estate market, the latest statistics and forecasts don’t bode well at all for the industry. Recently released stats on foreclosure rates reveal that 2009 was the worst year on record. And unfortunately, 2010 is looking like it’ll shatter the record yet again.

According to RealtyTrac, a firm that monitors real estate and foreclosure data, more than 2.8 million properties in America received a foreclosure notice during the past year. That’s 21% more than in 2008 and a whopping 120% higher than what was reported in 2007.

Moreover, one in every 45 households received at least one filing last year – nearly four times higher than 2006. These ugly numbers were racked up in spite of robust foreclosure prevention programs, without which the figures doubtless would have been significantly higher.

Unfortunately, the scenario doesn’t appear any better for 2010. Unless and until lenders are able to get principal balance reductions, high default rates are going to continue. In fact, RealtyTrac projects that a new record of 3 million or more properties will get a filing this year.

Where are we seeing the biggest problems? Well … in Michigan, to nobody’s surprise. But also in Nevada, Arizona and Florida. Until recently, those were states blessed with dramatic – even outsized – population and job growth, along with commensurately growing political power.

But as outlined in a recent article by Michael Barone, in an interesting twist of fate, these states are now experiencing net out-migration, while erstwhile laggard states in the Northeast and Midwest are now showing net in-migration.

It’ll likely take years to sort out the scrambled residential real estate market we have today – a situation sparked by a housing crisis for which many in government and the private sector are responsible … but which has also caught far too many innocent people in its clutches. Hopefully, the lessons learned will not be soon forgotten.