Recently published data from the Census Bureau indicate that the homeownership rate declines that have occurred during and after the Great Recession are taking an increasing toll on the under-age-35 cohort. The homeownership rate for this age group declined from 39.2% to 37.9% from the last quarter of 2010 to the first quarter of 2011 alone.
This decline suggests caution for those analysts who believe housing price declines are correlated with improvements in affordability. Typically, low house prices are correlated with affordability, but in the recent declines, they have not proved to increase home buying because of all the other hurdles imposed by credit allocators and threats of federal government policy changes.
This effect in turn is holding back housing demand among younger homebuyers who would add new net households and help absorb excess supply. We have previously discussed delayed household formation, and how it constitutes a growing shadow demand for housing.
Overall, the Census Bureau data show a small decline in the seasonally-adjusted homeownership rate for the U.S., which fell from 66.6% in the fourth quarter of 2010 to 66.5% in the first quarter of 2011 (a change small enough to be within the Census Bureau survey’s margin of error). The homeownership rate stood at 67.2% in the first quarter of 2010.
The U.S. last possessed a homeownership rate of 66.5% in the fourth quarter of 1998.
With respect to the stock of vacant housing units, the rental vacancy rate for the first quarter of 2011 ticked up to 9.7% (from 9.4% in previous quarter) and is down from 10.6% from the first quarter of 2010. The total number of renters is up about one million on a year-over-year basis to 37.7 million.
The homeowner vacancy rate declined for the first quarter of 2011 to 2.6% from 2.7% at the end of 2010 and is unchanged on a year-over-year basis. The total number of homeowners is down approximately 300,000 from the beginning of 2010 to 74.5 million.
Since the first quarter of 2010, the number of vacant units for-sale is approximately unchanged, but the number of vacant units for-rent is down by almost 360,000.
Finally, the effects of tight credit conditions for homebuying are creating distinct generational impacts. Since their peaks in 2004 (35 to 44 peaked in 2005), homeownership rates have declined:
- 5.2 percentage points for the under 35 cohort
- 4.9 points for those 35 to 44
- 4.1 points for those 45 to 54
- 3.1 points for those 55 to 64
- 0.1 points for those 65 and above
These data make it clear that younger buyers, who have less access to wealth to finance a downpayment, are being edged out of the market at greater rates. Indeed, NAR’s most recent estimates indicate that the share of first-time homebuyers in the existing home market is only 33% (down from a historical average of about 38% to 39%), while the share due to all-cash buyers is up to 35%.
Increased downpayment requirements and, perhaps, limits to the mortgage interest deduction would exacerbate these impacts.