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Homeownership Rate Hits 51-Year Low

Rental Occupancy at a High

By Louis Rosenthal | Tuesday, August 16, 2016

The homeownership rate in the United States tumbled to a five-decade low during the second quarter of 2016, according to data released by the Census Bureau on July 28.  At 62.9%, the homeownership rate is exactly where it was in the first quarter of 1965 when "The Sound of Music” was on cinema screens and “Downtown” by Petula Clark was at the top of the charts.

After peaking at 69.2% in the fourth quarter of 2004, the percentage of households owning homes took a nosedive in the face of the worst recession since the Great Depression and unfavorable demographics. The extent of the drop-off in the homeownership rate cannot be over-dramatized.

Between 1965 (when the Census Bureau first began to collect this data) and the deep recession of the early 1980s, the rate grew at a slow and steady rate, peaking at 65.8%. After a 15-year interlude, the number of homeowner households exploded during the mid- to late 1990s, thanks to an assortment of political and economic factors that made homeownership a particularly attractive form of housing tenure.

The generational differences vis-à-vis the decline in homeownership are interesting. Comparing the homeownership rate in the first quarter of 2010 with that in the second quarter of 2016, the decline has been most heavily concentrated in the 35-44 years-old age group (a 7-percentage-point drop).

This confirms what economists have said for years: The Great Recession hit Generation X the hardest in relative terms because, even though Baby Boomers technically experienced higher rates of job loss and negative wage growth, Generation X didn’t have the benefits of a pension or full Social Security benefits.

In absolute terms, the homeownership rate in the second quarter of 2016 was lowest for those younger than 35 years old (34.1%), followed by:

  • 35-44 years old (58.3%).
  • 45-54 years old (69.1%).
  • 55-64 years old (74.7%).
  • 65 years old and older (77.9%).

In other words, the older the age group, the more likely they are to own a home. In fact, the oldest age group saw the smallest relative decline in its home ownership , down from 80.6% in the first quarter of 2010.

Meanwhile, the rental vacancy rate – which includes all forms of rental housing, including single-family homes, duplexes and triplexes, among others -- fell to its lowest level since the fourth quarter of 1985. Reading these two charts together tells an intriguing story about the current state of the single-family and apartment markets, and where they are heading.

As Jeffrey Sparshott at “The Wall Street Journal” argued, the increasing rate of household formation is being driven almost completely by renters. In other words, as the economic outlook brightens (to which June and July’s employment figures can attest), more and more people are confident enough to rent an apartment, fill their apartment with consumer items and have children. As Sparshott wrote, “Down the road, renters will likely look to become buyers, spurring a housing market that already appears constrained by rising prices and limited inventories.”

Even though the rate of homeownership has cratered since the onset of the Great Recession, other economic factors, including household formation, job growth, and the rental vacancy rate, suggest a housing market not quite as gloomy as the headline numbers suggest. Home sales are up in many markets, though prices continue to make single-family homes unaffordable to many people. The higher-end homes being built are bought by the people who can afford them. But apartment rent growth continues to be above the long-term average, and absorption of the new supply seems to be strong.

Louis Rosenthal

Louis Rosenthal

Real Estate Analyst

Louis Rosenthal researches and analyzes current apartment trends in the United States and correlates them with economic indicators. He also studies the urban landscape and other metrics to develop in-depth reports and presentations for clients. Louis recently earned his Master of Science in Public Policy, focusing on housing, landuse patterns, real-estate dynamics and economic development. He combines that knowledge with his four years of practical experience in tax analysis, regression analysis and presentations to develop insightful analysis. An accomplished writer, Louis’ work has appeared on Forbes.com and Axiometrics’ blogs, among others.

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