by Calculated Risk on 3/14/2008 01:53:00 PM

From Fed Chairman Ben Bernanke: Fostering Sustainable Home Ownership.

Bernanke discusses the strong correlation between house price declines and mortgage delinquencies.

Mortgage performance data show a strong correlation between adverse house price changes and subsequent increases in mortgage delinquency and foreclosure (Avery, Brevoort, and Canner, 2007; Gerardi, Shapiro, and Willen, 2007). Investors who purchased homes in the hope of price appreciation seem particularly likely to walk away from "underwater" mortgages. Indeed, the role of investors in the housing market has increased markedly over time. According to data collected under the Home Mortgage Disclosure Act (HMDA), lending to non-owner-occupants has risen from about 5 percent of the home-purchase loans in the mid-1990s to about 17 percent of all purchases in 2005 and 2006 (Avery, Brevoort, and Canner, 2007). Mortgage delinquencies are also tied to local economic conditions; notably, several midwestern states struggling with job losses and slow income growth have seen increased delinquencies.

The situation is not contained to subprime:

The current high rate of delinquencies and foreclosures is not confined to the subprime market. In 2007, about 45 percent of foreclosures were on prime, near-prime, or government-backed mortgages.

And on negative externalities of foreclosure:

There is also work to be done in mitigating the impact of unavoidable foreclosures on consumers and communities. Families who cannot sustain homeownership will need to find new places to live, highlighting the critical need for an adequate supply of affordable rental housing. Consumers going through foreclosure typically will see their credit scores drop, raising longer-term questions about their ability to rebound financially and perhaps pursue a more sustainable home purchase at some later point. High numbers of foreclosed homes in some communities also raise challenges, and perhaps opportunities. Because vacant homes, in particular, impose real costs on neighborhood and communities, forward-looking strategies to keep these homes occupied are important (Apgar and Duda, 2005).

There is much more in Bernanke's speech.

And talking about sustainable homeownership:

Click on graph for larger image.

The Census Bureau recently reported that the homeownership rate declined to 67.8% in Q4, from 68.2% in Q3 2007.

The homeownership rate has plunged back to the levels of the summer of 2001. Note: graph starts at 60% to better show the change.