According to the US Census Bureau, the seasonally adjusted homeownership rate declined to 66% during the second quarter of 2011. This is the lowest reading for homeownership since the first quarter of 1998. Overall, the homeownership rate is down 3.4 percentage points since the peak was observed back in mid-2004.
While homeownership rates have trended lower for all age groups, the deepest declines occurred among younger householders. Since reaching their peaks sometime in the late 2004-early 2005 time frame, homeownership rates by cohort have registered net declines of:
- 6.1 percentage points for householders under the age of 35
- 6.3 points for the 35-44 age group
- 5.1 points for those 45-54
- 4.6 points for those 55-64
- 1.0 points for householders 65 and older
Persistently weak labor market conditions have caused a significant share of younger householders to delay forming new households, whether through pairing up, moving back into their parents’ homes or going back to school. This dramatic slowdown in new household formations has become a major impediment to soaking up vacant units in many housing markets. In addition, tight credit conditions are having an impact, as younger households have accumulated less wealth and thus are less able to meet stricter loan underwriting (read: down-payment) requirements. Add in concerns over the possibility of the federal government imposing limits to the mortgage interest deduction, and homeownership rates among younger households will likely struggle to rebound.
The sizable declines in homeownership rates among older cohorts are very disconcerting, however, and should not be ignored. The 45-54 and 55-64 age groups are the largest block of homeowners in absolute terms and also represent a key determinant of move-up demand. As mentioned above, declines in homeownership rates among younger cohorts likely represent delayed formations, but a falling rate among the 45-54 and 55-64 age groups is more suggestive of households being forced into new living arrangements with relatives (or others) following a foreclosure or other negative economic event. These households will likely re-constitute themselves, but not until the economic recovery, and more specifically job growth, gains some traction.
Switching to measures of the vacant housing stock, the vacancy rate for rental housing declined to 9.2%, which is a drop of 1.4 percentage points since 2010Q2 and the lowest reading for this series since late 2002. By contrast, the homeowner vacancy rate, at 2.5% in second quarter 2011, has remained at or very close to the same level for more than two years.