Permissions – Default File Permissions for Home Folder

You can leave your $HOME dir ownership alone. You don't need to set it to www-data. What you do have to do is ensure that Apache has execute permissions on $HOME and everything above it. So, you could do something like this:

chmod 751 "$HOME"
sudo chmod 751 /home

However, the fact that $HOME is encrypted might pose major problems for Apache unless you can somehow configure Apache to use the proper decryption key.

EDIT:

Setting execute permissions on a directory means only that you can access something inside the directory if you already know its name and if what you're trying to access also has correct permissions. So setting a global x-bit on $HOME isn't too much of a security risk, as long as all your other files have reasonable permissions. You might want to look into your umask to be sure.

drwxr-xr-x 157 root root 12288 2012-04-19 07:40 /etc

sudo chmod 755 /etc

Hope that helps ...