By Jim Droz

As the foreclosure crisis continues to wreak havoc on the housing market, a source of national pride has taken a sour turn. Home ownership is on the decline and, according to a recent Morgan Stanley report, the United States is fast becoming a nation of renters.

Early this month, the Census Bureau reported that the percentage of people who owned a home had dropped to 65.9 percent during the second quarter – its lowest level since the first quarter of 1998 and a far cry from the high of 69.2 percent reached in late 2004.

Yet, in a research paper issued a week earlier, Morgan Stanley analysts Oliver Chang, Vishwanath Tirupattur and James Egan argued that the home ownership rate is even lower than the Census Bureau statistics say.

In fact, once they factored in delinquent mortgage borrowers (the ones who are likely to lose their homes at some point), Morgan Stanley calculated that the home ownership rate is more like 59.2 percent. That’s the lowest level since the Census Bureau started keeping quarterly records back in 1965. The Census Bureau’s statistics, however, do not factor in mortgage delinquencies.

“The combination of falling home prices, limited mortgage credit, continued liquidations and better rental options is fundamentally changing the way Americans live,” the analysts said. “We believe this change is only beginning and is moving the country toward becoming a renters’ society.”

Many people are still technically considered homeowners who occupy their homes, even though they no longer make their mortgage payments. These “homeowners” can squat for months or even years because banks have been slow to process foreclosures in recent months.

In addition to the millions of people who have lost their homes to foreclosure, Morgan Stanley said that another reason for the decline in home ownership is that many of the people who would like to buy homes can’t get a mortgage.

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