The U.S. Census Bureau reported Tuesday that the nation's homeownership rate fell to 66% in the fourth quarter, continuing a seven-year drop from a fourth-quarter peak of 69.2% in 2004.

At the same time, U.S. home prices fell 1.3% in November from October and were 3.7% below 2010 levels, the Standard & Poor's/Case-Shiller home price index indicates.

STORY: Home prices drop in November for third straight month

Falling homeownership — and prices — reflect the worst housing downturn since the Great Depression. And while there are signs that the housing industry's downturn may at least be nearing a bottom, the impact of the collapse will be evident for years to come, economists say.

As of November, average U.S. home prices were back to mid-2003 levels, S&P says.

"Americans are less keen on homeownership knowing now that prices can fall," says Paul Dales, economist with Capital Economics.

Even if people want to own a home, they may not be able to, given the difficulty in getting financing for a mortgage, Dales says. The National Association of Realtors says many purchase contracts appear to be falling through for that reason.

Many economists expect home prices to continue to fall this year and maybe into next year before stabilizing and then showing little or no appreciation for some time.

"The trend is down, and there are few, if any, signs in the numbers that a turning point is close at hand," says David Blitzer, chairman of S&P's index committee.

Phoenix was the only city in Case-Shiller's 20-city index where home prices rose in November from October. They were up 0.6%.

On a year-over-year basis, only two cities showed rising values. Detroit was up 3.8%, and Washington, D.C., 0.5%, the Case-Shiller data show.

While prices are still falling in most areas, there are signs of increased home sales.

Existing home sales rose in December for the third consecutive month, the National Association of Realtors says. And pending home sales, while dropping more than expected in December, were still above levels a year before, NAR says.

"Home prices will be the last thing that moves up" after increasing sales and shrinking inventories, Blitzer says.

The homeowner vacancy rate fell again in the fourth quarter, the Census data show, to 2.3% from 2.4% in the third quarter and from 2.7% in the fourth quarter last year.

The 2.3% rate is the lowest since early 2006 and "leaves the visible inventory at a level consistent with house prices bottoming out later in the year," Capital Economics says.
The drop in homeownership rates has been most pronounced in the West. As of the fourth quarter, the homeownership rate there stood at 60.1%, the Census data show.

That's down from 64.5% in the fourth quarter of 2006, which is about when home prices began their five-year tumble.

The West is home to three of the states most affected by foreclosures, which have hurt homeownership rates. Nevada, Arizona and California were the top three states last year with the highest foreclosure rates, market researcher RealtyTrac says.

While homeownership drops, more people rent. Almost 34% of occupied homes in the fourth quarter were rented, according to the Census data. That's up slightly from the same quarter a year earlier.

The rental vacancy rate of 9.4% for the quarter was the same as a year ago but down from above 10% rates in the fourth quarters of 2009 and 2008, the Census data show.
Higher rents are expected as more people rent, economist Dales says.