The percentage of people who own the home they live in fell by 1.1 percent in 2007 — the greatest one-year percentage decline in at least 25 years.

And while homeowners still account for 67.8 percent of occupied homes, one of the highest homeownership rates on record, the decline did make housing analysts take note.

“This was inevitable,” says Lawrence Yun, chief economist for the National Association of Realtors. “Home sales activity is low, foreclosures are high, and would-be homebuyers are sitting on the sidelines.”

As of the end of 2007, there were an estimated 128.6 million housing units in the country — with 110.9 million occupied and 17.7 million vacant. Of those occupied, about 75.2 million of them were being lived in by the owners (67.8 percent) and 35.7 million by renters (32.2 percent).

The national rate of homeownership peaked at the end of 2004 at 69.2 percent. At the end of September 2006, an even 69 percent were owned by the occupants. The rate has fallen ever since. Not since March 2002 has homeownership been reported so low.

Homeownership rates 2002 to 2007
Year Q1 Q2 Q3 Q4
2007 68.4 68.2 68.2 67.8
2006 68.5 68.7 69 68.9
2005 69.1 68.6 68.8 69
2004 68.6 69.2 69 69.2
2003 68 68 68.4 68.3
2002 67.8 67.6 68 68.3
Source: National Association of Realtors
Two big reasons

What caused the numbers to fall? Foreclosures lead as the most popular theory.

As banks take possession of a home, two things happen. First, the home sits vacant while it is working through the court system, and second, the previous owners are pushed into a rental — both of which would drive down the homeownership percentage.

Another theory centers on an idea that the real estate market over the past few years “borrowed” buyers from the future to fuel the huge run up in housing prices.

“Homeowner rates increased more rapidly than they should have, and so that is why we say we ‘borrowed’ buyers from the future,” says Chris Porter, manager with John Burns Real Estate Consulting. “We did that with low mortgage rates and loose lending standards. Now we are in a correction, moving back to more normal homeownership rates.”

Anyone who might have been on the fence about buying over the past five years had the tools to make that purchase. Combine that with an ever-increasing housing supply coming from new home construction, and the record homeownership rates earlier in the decade just could sustain themselves.

“A study by the Federal Reserve Bank of Atlanta shows that most of this increase in homeownership was attributable to innovations in the mortgage market, rather than a demographic shift,” Porter says. “The rise in the homeownership rate among the younger population in particular showed a greater acceleration.”

In other words, people who may have waited to buy until, say, this year under normal conditions, actually bought their home in 2005 or 2006.

“This also means that the current pool of renters, as a whole, is less qualified to buy a home than usual, due to the fact that we already have drawn many of the more-qualified renters out of the rental pool,” Porter says.

Yet a third factor driving up the number of renters in the market is the people who bought a new house before their previous home actually sold, says Lewis Goodkin, president of Miami-based real estate information firm Goodkin Consulting.

While they are stuck with two mortgages, the second house either sits vacant, driving down the homeowner numbers, or is rented to cover some of the costs rather than being sold at a loss — which drives up the rental percentages.

“That is a function of people being not so eager to buy,” says Mike Simonsen, CEO of Altos Research.

As the pool of potential buyers grows, they will slowly begin to replace those borrowed buyers, but with housing in a slump, those new potential buyers may not be in a hurry to jump into the housing market and the homeowner percentage may fall more before it rebounds.

Michael Giusti is a freelance writer and teaches journalism at Loyola University New Orleans.