Paul Dales, senior economist at Capital Economics, just issued a note explaining that the decline in homeownership is a result of the sluggish economy and, importantly, a structural change in the housing market.

Part of this fall is due to foreclosures and the combination of high unemployment and tighter credit conditions preventing households from getting on the property ladder. The homeownership rate for those under 35 years old, who probably face the largest credit constraints, fell from 39.2 percent in the fourth quarter to a 16-year low of 37.9 percent. But it also seems likely that there has been a reduction in the desire to own a home now that it's clear that housing is not a one-way bet. After all, the incentive to buy is smaller now that prices are not rising by 15 percent a year and instead have fallen by over 30 percent in last four years. In other words, some of the drop in the homeownership rate represents a structural decline in the demand for housing.

Do not expect a quick turnaround. The homeownership rate peaked in 2004 at 69 percent. It has been falling every year since—except for 2009, when a temporary tax credit caused a first time homebuyer surge.

How far will homeownership fall? The homeownership rate hovered around 64 to 65 percent for decades. The correction will likely overshoot that average, bringing us down to homeownership rates not seen since the early 1960s.

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