The number of homeowners has reached an all-time high, according to the U.S. government. Approximately 70 million families, or 68.1 percent of households, own their own home.

To be sure, there are loads of benefits that come along with that monthly mortgage payment. Uncle Sam subsidizes homeowners by allowing homeowners who itemize on their federal income tax to deduct the mortgage interest and real estate property taxes they pay.

Homes are a huge tax shelter as well: When you sell your primary residence, you can keep up to the first $250,000 (up to $500,000 if you’re married) in profits tax-free, as long as you’ve lived in your home for at least 2 of the past 5 years. Homeowners currently have approximately $6.7 trillion in home equity.

Studies have shown that homes aren’t just about having a place to sleep. They also become the single largest asset for many Americans, accounting for at least 50 percent of their net worth.

Two factors cause this: First, you eventually stop refinancing your home loan and pay it off. And, second, your home typically rises in value over time. In fact, after you adjust for inflation, home prices rose nearly 6 percent in 2000. In the last decade, home values nationwide have risen more than 30 percent.

What’s surprised many economists over the past year is that while the country has briefly dipped into a recession, mortgage interest rates have stayed low and the housing market has roared on. Even the events of September 11 didn’t do much to slow things down. Americans believe that home prices will continue to rise and are a good investment.

It’s clear that today, many homeowners believe their driveways, rather than America’s streets, are paved with gold.

According to the newly-released study from Harvard University’s Joint Center for Housing Studies, the recent growth of the housing market has been fueled by mortgage lenders. This year’s “State of the Nation’s Housing” found that “new types of lending organizations provide distinctly different mortgage products to lower-income markets than those commonly offered by higher-income markets.”

In fact, “government-backed loans and lending by subprime and manufactured housing specialists account for almost two-thirds of recent increases in lower-income neighborhoods.” Eighty-one percent of higher-income borrowers use conventional financing.

But the study found that more homeowners are spending a greater percentage of their monthly income on their homes. Flexible lending requirements now permit home buyers to qualify even if they are spending as much as 45 percent of their gross monthly income on their housing expenses and other debt. (Conventional lenders permit borrowers to spend just 36 percent of their monthly income on total debt.)

The problem is that the calculations are made on gross income, not on what you bring home in your paycheck. Spending 45 percent of your gross income on total debt seems doable, until you realize that it’s about 60 percent of your take-home pay.

Many homeowners are now dipping into their pots of home equity to pay off credit card bills and other debts. That could put their home at risk. While lower income families are used to spending much more of their paycheck on rent, it is still of a concern.

But that hasn’t stopped President Bush, who last week announced new initiatives that would increase minority and immigrant homeownership by 5.5 million. Just after the President’s speech, U.S. Department of Housing and Urban Development Secretary Mel Martinez, in conjunction with secondary market lender Freddie Mac, the City of Chicago, and the Chicago Housing Authority launched “Choose to Own,” a new citywide program that will enable low-income renters to turn their Section 8 federal housing vouchers into monthly payments on affordable home mortgages. If successful, there is talk about taking the program nationwide.

In fact, the Harvard study estimates that minorities and immigrants will push the percentage of homeowners higher in the future. Minorities already account for almost two-thirds of household growth in the U.S., and the study expects that “minorities will make up more than half of all renters and a quarter of all owners by 2020.” The study found more than half of the 6 million net households added in the past five years are headed by minorities.

With the expected addition of 1.1 million new households each year, the number of homeowners should keep growing. And, that should keep home prices rising – unless something happens that throws mortgage interest rates out of whack.

June 3, 2002.