U.S. Homeownership Rate at Highest Level Since 2014

The U.S. homeownership rate rose to 64.8 percent in the fourth quarter, the Census Bureau reported yesterday, marking its highest rate since 2014.

The rate increased from 64.2 percent in the third quarter. After peaking in 2nd quarter 2004 at 69.2 percent and falling to a modern-era low of 62.9 percent in 2nd quarter 2016, the homeownership rate has experienced a slow but steady recovery to its current level.

Joel Kan, Associate Vice President of Industry Surveys and Forecasts with the Mortgage Bankers Association, noted the fourth-quarter increase was driven mainly by a rise in the 35-44 year old homeownership rate (to 61.1 percent from 59.5 percent), with most other age categories essentially unchanged.

“The final three months of last year also yielded an additional 1.7 million units compared to the end of 2017,” Kan said. “This made 2018 the strongest year for owner household formation since 2004. We have now seen three years of growth in homeownership–with the last two well in excess of the one million mark–and believe that housing demand continues to be strong.

Census reported (https://www.census.gov/housing/hvs/files/currenthvspress.pdf) the homeowner vacancy rate in the South (1.7 percent) was higher than rates in the Midwest (1.3 percent) the West (1.2 percent and Northeast (1.5 percent). The report said 88.2 percent of the housing units in the United States in the fourth quarter were occupied, while 11.8 percent were vacant. Owner-occupied housing units made up 57.2 percent of total housing units, while renter-occupied units made up 31.0 percent of the inventory in the fourth quarter 2018. Vacant year-round units comprised 9.0 percent of total housing units, while 2.8 percent were for seasonal use.

Census reported national vacancy rates in the fourth quarter fell to 6.6 percent for rental housing (from 7.1 percent in the third quarter) and to 1.5 percent for homeowner housing (from 1.4 percent in the third quarter).

Rental vacancy rate was highest in the South (8.5 percent) followed by the Midwest (7.1 percent), Northeast (5.1 percent) and West (4.5 percent)

The report said 2.2 percent of the total units were for rent, 0.9 percent were for sale only and 0.8 percent were rented or sold but not yet occupied. Vacant units that were held off market comprised 5.2 percent of the total housing stock–1.5 percent were for occasional use, 1.0 percent were temporarily occupied by persons with usual residence elsewhere and 2.7 percent were vacant for a variety of other reasons.

“The 35-to-44 age bracket is driving this most recent step forward, growing a whopping 2.2 percentage points to 61.1 percent,” said Zillow Senior Economist Skylar Olsen. “This is good news for the bracket after stagnating under 60 percent last year. The homeownership rate of the under-35 age group continues to grow, but at less than half the pace set by last year.”

Ralph McLaughlin, deputy chief economist with CoreLogic, Irvine, Calif., said younger households have supported homeownership growth for eight consecutive quarters.

“While much of the recent growth in homeownership rates is due to young households buying homes, they aren’t doing so ubiquitously across the country,” McLaughlin said. Millennials are buying homes at the highest rates in the more affordable Midwest, Mountain West and Northeast markets. Conversely, they are buying homes at the lowest rates in more expensive markets, like coastal California and Florida.”

More broadly, McLaughlin added, homeownership data show the U.S. housing market continues on a healthy path of recovery. “This is for three reasons: first, the upward tick in homeownership has been stubbornly persistent, despite the existence of low housing affordability and inventory; next, household formation has seen the strongest streak in over a decade; and lastly, young households, which represent the largest pool of potential homebuyers in the United States, are starting to enter the homeownership game,” he said.

Kan said as home-price growth and income growth continue to converge, “and if additional inventory returns to the market, we expect to see increased buyer interest and purchase originations in 2019.”