IMPEACH BUSH

NEW YORK (CNNMoney.com) -- The housing and mortgage meltdown caused the biggest one-year drop in the rate of homeownership on record, according to government figures released Tuesday.

The decline, while expected, is yet another indication of the housing market's sudden and dramatic turn.

The Census Bureau report showed that home owners accounted for 67.8% of occupied homes in the fourth quarter, down 1.1 points from a year earlier. It's the largest year-over-year drop recorded in the report.

"It's an incredible story," said Dean Baker, co-director of the Center for Economic and Policy Research. "We're back to where we were in 2002, which is before the subprime nuttiness and run-up in prices. And it's not clear how much farther we're going to fall."

The ownership rate was well below the 68.2% ownership rate in the third quarter of 2007. Homeownership rates, which have been tracked since 1965, hit a record high of 69.2% in the second and fourth quarters of 2004.

Foreclosures leap 75 percent

A record 2.18 million homes sat vacant and available for sale in the fourth quarter, according to the report, up from 2.07 million in the third quarter and the 2.1 million a year earlier. The fourth-quarter reading on vacant homes for sale matched the previous record set in the first three months of 2007.

The report shows that 2.8% of homes not in the rental market now sit vacant, matching the record high, also from last year's first quarter. That's nearly twice the rate of vacant homes that were on the market during the first quarter or 2001, just as the economy was heading into its last recession.

"For some perspective sake, this measure never topped 1.9% until the housing bubble started deflating," said Mike Larson, a real estate analyst with Weiss Research.

Dream turns into nightmare: The report shows that the ability of home ownership is slipping away for many Americans who had taken the plunge and bought homes during the housing boom of 2003 to 2005. The accelerating decline in ownership rates is a stark contrast to the relatively steady rise over the previous 20 years.

"The vast majority of those switching from ownership to renting are foreclosures or those forced to sell because they can't make the payment," said Baker. "What's really striking is we should have seen a rise of ownership because of the demographics, with all the baby boomers entering their peak home ownership years. Instead, we're seeing it fall quite a bit."

But the subprime mortgage crisis of 2007, which cut off financing to many who had previously been able to use riskier loans to buy a house, and the rising foreclosure rates are just the latest blow to home ownership.

The real estate boom that preceded the mortgage meltdown had produced its own problem, as rising prices reduced affordability for many homeowners and locked out many who wanted to buy a home. Now the reports of falling prices are scaring many potential buyers even in markets where homes are becoming more affordable.

Home price drop: Biggest ever

The glut of vacant homes and the falling rates of ownership are signs of the evaporation of demand for home sales, which in turn has hammered housing values, particularly in neighborhoods with multiple homes sitting empty.

Flood of bad news: The report comes the same day that RealtyTrac, an online seller of foreclosure properties, reported that total foreclosure filings grew 75% in 2007 and S&P Case/Shiller, which tracks home values in the nation's largest markets, posted the biggest price decline on record for its November reading.

The downturn has also hit home builders particularly hard. Hollywood, Fla.-based home builder Tousa (TOUS) filed for bankruptcy protection Tuesday.

And builders have been stuck with a record inventory of 195,000 completed homes at the end of December, according to a separate Census Bureau report Monday. That report also indicated that new home sales posted the biggest annual drop on record last year.

Lennar (LEN, Fortune 500), the nation's largest builder by revenue, reported a company record $1.25 billion fourth-quarter loss on Thursday, as it was hit by lower prices, weak volume and hefty charges to write down land values. At the end of its most recent quarter, Lennar agreed to dump 11,000 properties to the real estate arm of Morgan Stanley (MS, Fortune 500) for only 40 percent of their previously estimated value.

Other top builders, including KB Home (KBH, Fortune 500) Centex (CTX, Fortune 500), D.R. Horton (DHI, Fortune 500) Pulte Homes (PHM, Fortune 500) and Hovnanian Enterprises (HOV, Fortune 500), are all expected to post losses through much of 2008.

The sharp decline in home building, coupled with the reduced ability of many American consumers to tap into home equity lines of credit to support their spending has significantly increased the risk that the broader U.S. economy will topple over into a recession this year, if it hasn't done so already.