The homeownership rate has ticked down again.
Q2’s U.S. homeownership was 64.1% not seasonally adjusted and 64.2% seasonally adjusted. Both rates fell slightly from Q1 and year-over-year. Q2 marked the second quarter in a row where the rates fell from the prior quarter. This was the first quarter since 2016 that experienced a year-over-year decline, albeit modest at 20 bps for both rates.
The decline is somewhat surprising given low mortgage rates, low unemployment and aging millennials. It represents, at least temporarily, the financial challenges of moving into homeownership as well as the mismatch between consumer demand and housing product availability.
The rate decline also represents a sustained contentment with renting multifamily housing.
We believe the recent decline is temporary and the homeownership trend will revert back to the slow upward course it had been on for nearly three years. Rates will level off far below the 2004 peak of nearly 70%.
Homeownership for the under-35 cohort —nearly all millennials-—slipped 0.1 point year-over-year. The 335-to-44-aged households—half Gen Xers, half millennials—had the largest decrease (-0.6 point). The 45-to-54- age group—all Gen Xers—had the next largest year-over-year decline (-0.5 point).
West & Midwest Have Largest Declines
Regionally, the Midwest maintained the highest homeownership rate in Q2 (68.0%). Homeownership in the West and Midwest regions edged down 0.4 and 0.3 percentage points from a year ago.
By metro, Los Angeles had the lowest homeownership rates in Q2 2019 (46.5%), followed by New York, San Jose, San Francisco and Las Vegas. Typically, metros with lower rates have either high housing costs or high levels of in-migration.
Lifestyle & Housing Costs Influence Trends
During the 2008 recession and in the early years of recovery, the stressed economy and uncertain individual household finances contributed greatly to reducing homeownership rates. Yet homeownership rates continued to fall even as the economy and households began to get back on their feet.
In recent years, many non-economic lifestyle factors have influenced homeownership trends, including marrying later than previous generations, starting families later and placing a higher value on housing flexibility (renting allows for more mobility). Additionally, the greater social acceptance of renting than in the recent past and the increased popularity of urban living (where renting is more common than owning) have kept homeownership from rising.
Surveys have shown, however, that most renters want to own a home at some point. Therefore, the rising cost of housing is the major deterrent to homeownership. U.S. home prices have risen by 6.2% annually since the recession with significantly higher increases in many markets. (Note, however, that this year, mortgage rates have been coming in quite low, thereby mitigating the cost of homebuying; as of July 25th, a 30-year fixed-rate mortgage averaged 3.75% according to Freddie Mac.)
The biggest trend which should be driving homeownership rates higher is demographics: aging millennials. Homebuying increases with age, and millennials are moving into homeownership, albeit at a slower place than previous generations.
By Jeanette Rice, Americas Head of Multifamily Research, CBRE.