Mr. Watts said he is still anxious about owning a home. Is the neighborhood going to continue improving, or will the drug problems a few blocks over infiltrate his block as well? What happens if his wife gets a job offer in Alaska? Will they be able to afford going out to dinner?

He and his wife are among the lucky few of their age group able to jump on the home ownership bandwagon. For many other young people - along with, increasingly, the poor - the wagon is quickly receding and leaving them behind.

According to figures from the Joint Center for Housing Studies of Harvard University, the overall decline in home ownership rates has been slight compared to the new reality for young people. For all households, the ownership rate dropped to 64 percent in 1987 from the 50-year-peak of 65.6 percent in 1980, a slight but significant decline because it came during a sustained housing recovery.

However, those changes bear much less importance than the subsets for age groups. Here the record shows what young people have had to confront as they have tried to attain the same standards of living as their parents. From age 24 to 39, there has been a dramatic 7 to 8 percentage point drop in home-ownership rates. What this means, according to the Harvard study, is that 2 million households that would have been able to buy a house or apartment in 1980 cannot afford to do so today.

''People are struggling real hard to get in,'' said William C. Apgar, Jr., the author, with H. James Brown, of the Harvard housing study. Mr. Apgar explained that while rapidly rising dwelling prices help those who already own by expanding their equity investment, it severely restricts first-time buyers. Those shut out remain renters, driving up rents and short-circuiting their chances of saving enough for a down payment. But that does not keep them from trying to get their dream house.

The reality today is that many couples may have to wait longer than they expected to buy that first home, building up job security and personal savings until the numbers work.

Michael T. Cranwell, a 35-year-old captain with the Union City, N.J., Fire Department, and his 29-year-old-wife Imma are just now timidly testing the waters of home ownership. Expecting their first child in November, they are just about to close on a two-bedroom, expanded Cape Cod in Hackensack costing $155,000. On paper, they have figured they will be able to afford the house, and the baby, and the loss of one salary. But they remain anxious.