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The puzzling case of the declining homeownership rate

The share of Americans who own homes, at 63.4 percent, is now at the lowest level in nearly 50 years, the U.S. Census Bureau reported last month.

But while the homeownership rate has been falling at a faster pace than ever before, analysts say it isn’t clear whether this trend can be viewed as a big negative for the housing and mortgage markets.

Media reports often explain falling homeownership as a product of the downturn. It is blamed on foreclosures, a tight credit market, and on young people who have held off moving out of their parent's homes.

But the data is a bit of a puzzle.

“I don’t think there is a target [homeownership rate],” said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute. “I think there are certain people who should own at certain stages in their life when it makes sense to own. Most people are going to be both homeowners and renters over the course of their life.”

According to Census data, the rate has fallen steadily from a high of 69.2 percent in 2004. Homeownership rose during the Clinton years and through the housing bubble. The 20-year historical data looks like a bell curve on a graph.

Analysts say the downturn did contribute to a falling rate, as millions of people lost their homes to foreclosure. A bad housing market and economy doesn’t explain the trend entirely, however.

Falling homeownership 

The homeownership share actually started dropping in parts of 2005 and 2006, a decline beginning three years before the housing crash when the market was peaking, the Census data suggests. The rate declined steadily through the housing downturn; however, the rate did not fall as fast during the height of the housing bust as it did in the most recently completed quarter.

In the second quarter, homeownership fell by 1.3 percent year over year, the fastest rate of decline for the quarter since the numbers started dropping in 2005. Analysts say that age and race demographics are more in play now. More young people, who tend to rent up to the age of 30, are forming households.

“It is falling because we are not getting new entrants into homeownership,” said David Crowe, chief economist for the National Association of Home Builders. “Now there are so many renters forming households, they are driving down the rate.”

National Association of Realtors (NAR) surveys suggest that the homeownership rate should be higher, said Danielle Hale, NAR’s director of housing statistics. She said about 80 percent of people indicate in surveys that they want to own a home.

“For a lot of people, that is an important aspect of achieving the American dream,” she said.

NAR, though, has taken no position on what a healthy homeownership level represents.

“There were some credit changes in the aftermath of the recession that were designed to make the housing-finance system more stable, but also have the effect of making it more difficult for some people with lower credit scores or less credit history to get into the housing market,” she said.

“It is really hard to know what the right level of homeownership should be.”

In a recent study, the Urban Institute said that homeownership rate would naturally fall to a level around 61 to 62 percent by the year 2030. The study also estimated that more 80 percent of the roughly 22 million households that will form in the 20 years to 2030 would be nonwhite households, people who tend to have much lower homeowner rates.

Goodman said that while she also doesn't know what the right level should be, she is concerned with the low rate of homeownership among African Americans, which is projected to fall to around 40 percent.

"Obviously, long term, homeownership has been a wealth-building vehicle for people," she said. “It basically puts so fewer African Americans in the position to do the wealth accumulation.” 


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