Aug 12, 2016 11:45 ET Scotsman Guide
The U.S. homeownership rate has resumed its puzzling decline.
Despite two years of strong monthly job gains and solid home sales at a pace of 5.5 million annually, the homeownership rate fell to its lowest level in 50 years in the second quarter, according to the U.S. Census Bureau.
The unadjusted rate of 62.9 percent was last this low in 1965.
Another troubling statistic is that homeownership has fallen in every generational group tracked by the Census Bureau and for all racial minorities except African Americans. The homeownership rate for African Americans, which is the lowest among all minority groups at 41.7 percent, ticked up 20 basis points in the quarter.
It seemed that homeownership levels had reached bottom last year. The rate edged up for two quarters at the end of 2015 but then fell again.
With the improved economy, most analysts are still expecting the homeownership rate to stabilize after falling for most of the past decade.
“Our outlook is that there might be some additional, modest declines, but we are looking for some relative stability in the second half of the decade compared to what we have seen over the last five years,” said Patrick Simmons, director of strategic planning for Fannie Mae.
Homeownership numbers will likely move back up only if there is an expansion of first-time homebuyers. With the huge millennial generation coming of age, the demographics seem to be shifting in favor of higher homeownership levels. Here there could be some good news. Fannie Mae recently uncovered evidence that the homeownership rates of older millennials between the ages of 28 and 31 are accelerating at a quicker pace than a decade ago.
“Young people still indicate a strong desire to own homes when we survey them about their preferences,” Simmons said.
The younger generation has put off marriage and delayed other life events, in part because of the recession, he said. That appears to be changing, however. “I do think the leading edge of the millennials, the oldest ones, are starting to make some of those life changes that are typically associated with first-time homebuyers,” Simmons said.
The movements of the homeownership rate are difficult to predict, however. Homeownership trends haven’t precisely tracked with the fortunes of the housing market and economy, although homeownership fell during the recession.
The homeownership rate began to fall in 2005 when the housing market was at its peak, according to Census data. Analysts told Scotsman Guide News that the economic problems left over from the downturn have likely prolonged the decline. Relatively tight credit conditions, fast-rising home prices, lower inventories of moderately priced homes, and only modest gains in household income are throwing up roadblocks.
“I would argue that it is mostly market related,” said Danielle Hale, director of housing statistics with the National Association of Realtors. Hale noted that the overall market share made up of first-time homebuyers has been lower than normal.
“In order to raise the homeownership rate, you really need to increase homebuying among first-time buyers,” Hale said. “That is something that has really been lacking despite the fact that home sales have been increasing.”