For the first time in 22 years, Americans last year had more money in stocks and mutual funds than equity in their homes.

New data from the Federal Reserve Board show that runaway stock market growth built the securities holdings of Americans to $5.09 trillion, while slow appreciation in home prices held home equity to $4.7 trillion.

The numbers underscore a major shift in the way Americans have come to view their homes. In the 1970s and 1980s, homes were investment vehicles for college tuition and retirement, beating out earnings on stocks and bonds. Increasingly in the 1990s, homes are just a place to live.

For lenders, slow price growth has impeded expansion of loan volume, because homeowners are staying in their homes longer instead of trading up frequently, economists say. Previously, homeowners had used rapid equity buildup to leverage up to costlier properties.

Now, it's "back to basics" for homeowners, said Greg Romano, a spokesman for Kaufman & Broad Home Corp., California's largest home builder.

First-time homeowners and first-time move-up buyers look to mundane details, such as how the carpets will wear and whether the appliances will hold up, Mr. Romano said. In the 1980s, these buyers wanted frills such as master bedrooms with fireplaces, Jacuzzis, and steam showers, he said.

The changed attitudes toward owning a home show up in other ways too. As long as homes were looked upon as investments, homebuyers got the biggest and most expensive home they could possibly afford, Mr. Romano said. "The thought was, you couldn't lose money," he said, and maximizing the home purchase was considered a smart financial strategy.

Economists say those halcyon days won't be back anytime soon. They project that home prices will plod along - rising only slightly above the rate of inflation - for the rest of this decade and into the foreseeable future.

Lenders have made up for the loss of trade-up and speculative sales by lending aggressively to first-time and low-income homebuyers, often using low-down-payment programs and relaxed credit standards to get people into homes.

The result will be more late loan payments, defaults, and losses, because "folks (are) getting into houses that may not be quite ready," said Sam Lyons, senior vice president of mortgage banking at Great Western Bank, Chatsworth, Calif. For example, many of these new homeowners don't have savings to fall back upon if they lose their jobs, Mr. Lyons said.

Many economists agree that the mortgage industry's new low-income customers could ultimately deepen losses.

The next time a recession hits "we'll probably see very high levels of delinquencies, and losses will rise very quickly," said Mark Zandi, chief economist at Regional Financial Associates.

Mr. Zandi projects that delinquencies in the next decade will surpass those in the previous 10 years. On average, in the next 10 years, 3.27% of conventional home loans will be plagued by late payments, compared with an average of 3.02% in the past decade, according to his forecast.

In the fourth quarter of 1995, delinquencies on conventional loans stood at 2.96%, according to the most recent data put out by the Mortgage Bankers Association.

But Mr. Zandi says buyers of modest means won't be the only ones to run into trouble. Even middle-income homeowners, who have seen their incomes and home prices held down by corporate downsizing, will be affected, he said.

Owing to slow home-price gains as well as the popularity of home equity loans, cash-out refinancings, and low-down-payment mortgages, neither income group will have the equity cushion to bail itself out when financial potholes develop, Mr. Zandi said. By contrast, in the 1980s rapid gains in home prices shielded borrowers and lenders from losses when things went wrong, he said.

Slow growth in home prices also has broad implications for the way wealth is distributed in American society. The income gap has widened; low- and middle-income Americans have lost ground to new technology and cheaper labor overseas, while upper-income Americans have cashed in on superior skills.

With home prices appreciating slowly, low- and middle-income Americans lose another tool to bridge the widening wealth gap, Mr. Zandi said.

Meanwhile, upper-income families simply put their money in other places, such as stocks and bonds, said economist Sung Won Sohn, senior vice president of Norwest Corp., Minneapolis.

For the nation's wealthiest families - those earning $100,000 and more - home equity is a relatively small part of their financial portfolio. Only 9% of the net worth of these households is tied up in their homes, according to the Survey of Consumer Finance. But, families making $25,000 to $49,999 have 29% of their net worth in their homes. The lowest-income homeowners - families that make less than $10,000 annually - have 98% of their savings in their homes.

Some economists stress the silver lining in this housing cloud.

Housing booms, such as those in the Northeast and California in the 1980s, are inevitably followed by economic busts when housing-driven gains in jobs and spending evaporate, argues Karl E. Case, professor of economics at Wellesley College and a principal in the research firm of Case Shiller Weiss, Cambridge, Mass.

At the height of the 1980s boom in Massachusetts, for example, real estate commissions swelled from $331 million to $1.2 billion, Mr. Case said. Homeowners in the Boston area gained about $100 billion in the value of their homes, and their spending fueled more economic activity.

"But then when the air came out of that balloon, we had to give back a lot of temporary jobs," Mr. Case said. "We were an expensive region to do business in, and we ran into a national recession.

"I don't want to live through the boom-bust cycle again."

In any case, housing as an investment isn't dead, Mr. Case says. For one thing, homeowners continue to derive significant returns once the value of the rent they aren't paying is factored in. Also, historically, land values have appreciated about 2.5% above the rate of inflation, Mr. Case said, making housing a pretty good investment, particularly for leveraged homeowners.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.