Authors: Andrew Haughwout, Richard Peach, and Joseph Tracy

Recent years have seen a sharp rise in the number of negative equity homeowners—those who owe more on their mortgages than their houses are worth. These homeowners are included in the official homeownership rate computed by the Census Bureau, but the savings they must amass to retain their home or purchase a new home are daunting. Recognizing that these homeowners are likely to convert to renters over time, the authors of this analysis calculate an “effective” rate of homeownership that excludes negative equity households. They argue that the effective rate— 5.6 percentage points below the official rate—may be a useful guide to the future path of the official rate.