U.S. Homeownership Rate Rises

It looks like the millennials are getting into the homeownership game, and that promises to impact the housing market in a big way if the trend continues. From the Wall Street Journal:

The U.S. homeownership rate rose in 2017 for the first time in 13 years, driven by young buyers who overcame rising prices, tight supply and strict lending conditions to purchase their first homes.

The annual increase marks a crucial turning point because it comes after the federal government reined in bubble-era policies that encouraged banks to ease lending standards to boost homeownership…

The homeownership rate rose to 64.2% in the fourth quarter of 2017 from 63.7% a year earlier, according to data released Tuesday by the U.S. Census Bureau. The share of Americans who own a home has been on the rise since the first quarter of last year, indicating a reliable upward trend.

The homeownership rate among households headed by someone under age 35 rose to 36% in the fourth quarter from 34.7% a year earlier. That was by far the largest increase of any age group during the period.

And here’s the paragraph that should catch every apartment executive’s eye, particularly the last sentence:

Now, the homeownership rate is rising again as millennials begin to embrace homeownership. In all, the U.S. added roughly 1.5 million new owner households in the past year. Meanwhile, the number of renter households declined by 76,000, the second consecutive quarter in which the renter population shrunk on an annual basis.

No doubt the apartment industry has been on a heckuva run over the last eight or nine years, but numbers like this must have some people wondering if the run is about to end or at least hit a serious plateau.

More First Time Homebuyers Entering the Market

In a Wall Street Journal article that begins by looking at how young people have been shut out of homeownership since the recession, there appears to be evidence that some are finally entering the market:

Many young people have been delaying buying homes due to tight credit, student loans and rising rents that have made it difficult to save for down payments…

But that is starting to change. So far this year, first-time buyers represented about 38% of the market, greater than the historical average of 35%, according to Genworth. Some two million first-timers purchased homes last year, or 37% of the market…

A number of factors are propelling first-time buyers into the market. Many are entering their 30s, marrying and having children, and need more space than they can get by renting.

Credit also appears to be loosening. According to Genworth, about 78% of first-time buyers are using low-down-payment loans, compared with the historical average of 73%.

Economists said a wave of first-time buyers is likely coming over the next decade, as a large cohort in their mid-20s begin to buy homes.

Considering the size of the Millennial generation, this probably will have a significant impact on the apartment industry. Eventually.

Student Debt Impacting Homeownership Rates

Over the last couple of years, we’ve been hearing anecdotes about why young adults aren’t buying homes at the rate we’d normally expect based on historical trends. One of those anecdotes is that young people saddled with student debt are unable to qualify for home loans, thus delaying their entry into homeowner status, but there hasn’t been a lot of data to back that up until now.

The Wall Street Journal has an article about a report from the Federal Reserve Bank of New York showing that student debt is indeed affecting homeownership, although it’s not a large percentage of the overall population:

The report offers a mixed assessment on the effect of student debt on the economy. Student debt, which has more than doubled over the past decade to $1.3 trillion, has risen partly due to an increase in the number of Americans attending college. That has led to higher incomes and, in turn, positioned many Americans to buy homes.

But a significant minority of borrowers are defaulting on their student loans and in turn harming their credit and ability to purchase homes, the report shows.

More than 1 in 10 borrowers are at least 90 days behind on their student debt. The delinquency rate for student loans is far higher than it is for other forms of credit, including mortgages, credit cards and auto loans…
Student debt appears to dampen homeownership rates among those with the same level of education, the report said.

Homeownership Rate Lowest Since 1967, US Rental Vacancy Rate at 6.8%

In 2Q15 the US homeownership rate fell to 63.4%, down from 63.7% in the first quarter of the year, the lowest it’s been since 1967.  The result has been an increase of about 2 million renter-occupied units in the last year, resulting in a vacancy rate of just 6.8% which is down from 7.1% in the first quarter. From BloombergBusiness:

Would-be homebuyers have been held back by stringent mortgage standards and wage growth that hasn’t kept up with surging home prices. The average household income in June was 4 percent below a record high set in early 2008, even as unemployment dropped to its pre-recession rate, according to Sentier Research LLC.

 “We’re still suffering the effects of the housing collapse and the financial crisis,” said Mark Vitner, senior economist with Wells Fargo Securities in Charlotte, North Carolina. “We may have another percentage point to go before we see a bottom” in the homeownership rate, he said.

Home values have jumped 34 percent since reaching a bottom in early 2012, making purchases more expensive for entry-level buyers. Prices in 20 U.S. cities climbed 4.9 percent in May from a year earlier, the S&P/Case-Shiller Index showed Tuesday.

Homeownership Rate at Lowest Level in Over 20 Years

The latest US census data reveals that the homeownership rate has plummeted over the last ten years from 69% to just under 64%:

For the first time in more than 20 years, the homeownership rate in the U.S. has fallen below 64 percent, the U.S. Census Bureau has announced.

The seasonally adjusted 63.8 percent rate is far below the 69 percent rate just 10 years ago – a time when homebuying may have been the easiest for Americans.

And the steepest slide has come in an age band that you might not expect:

Census data shows homeownership rates for individuals aged 35-44 years are falling the fastest – from a high of almost 67 percent in 2009 to little more than 58 percent in 2015.

The article goes on to point out the contributing factors, like tight lending standards and stagnating income levels, but then it ends with a paragraph that folks in the apartment industry will not be surprised to read:

On the same day, the Census Bureau also released rental vacancy rates across the U.S., and the market could not be tighter. The vacancy rate of 7.1 percent during 2015 first quarter, and 7 percent the quarter before, are at their lowest in about two decades.

Here’s a link to a chart with showing the ownership and rent data in more detail.

 

Apartment Construction Pace Hits 25-Year High

According to Freddie Mac VP and Chief Economist Frank Nothaft, apartment construction is at a 25-year high, but the good news is that those units are being absorbed thanks in part to a continuing drop in home ownership rates:

Freddie attributes these absorption rates to the decline in the overall U.S. home ownership rate, which fell to 64.7 percent in the second quarter of 2014. That was the lowest mark since 1995. As home ownership falls, apartment vacancies have also dropped to their lowest level in 14 years.

Here’s a video of Northaft’s comments:

[youtube=http://youtu.be/huzxTwBRNJM]

Homeowners and Renters – The New Integration

The Washington Post has a fascinating article about the integration of homeowner and renter communities:

Not surprisingly, as the national homeownership rate has declined, and as homes that were traditionally owned became rentals, Kolko found that owners and renters became more integrated between 2000 and 2010 in 70 of the 100 largest metros in the country. This trend was driven by the decline of neighborhoods where nearly everyone owns a home, and the steady rise of the kind of Census tracts where 20-60 percent of households are rented…

On the one hand, this means that people who are renters now have neighborhoods open to them that weren’t in the past. On the other, Kolko points to a Trulia survey last year that found that 51 percent of homeowners believe it’s important that their neighbors be homeowners, too. In other words, renters may not always be welcome, as the New York Times described in a story last summer about formerly owner-occupied neighborhoods changing in “profound ways,” portending “reduced home values, lower voter turnout and political influence, less social stability and higher crime.”

Kolko’s data suggest that few places are dramatically flipping from all-owner to all-renter. But even a much subtler change can still bring out anxieties grounded in all of the beliefs we’ve long held about each other. I’m not sure what this proximity will teach most of us — that some of the values associated with homeownership might rub off on nearby renters? That homeowners have less (or more) to fear from renters in the midst than they think? That our financial relationship to our homes matters less than it used to?

Given our modern lifestyles of dual income homes, kids who never play outside and a general decline in community participation it’s not like neighborhoods full of homeowners are all as tight-knit as they were in the past, so it’s possible that people might not know who’s a renter and who’s not. Still, it will be interesting to see if this trend changes the public’s general perception of renters, but even if it does it’s not likely to help apartment developers overcome NIMBYism. Can’t you just hear it now? “Well, single home renters are different from those apartment people.”

The Fall of Young Homeowners

It’s no secret that home ownership rates took a dive during the Great Recession, but what’s more stunning than the overall decline from 69.2% in 4Q04 to 65.6% in 3Q12 is what has happened to the homeowner rates for the younger crowd.  From a post at US News & World Report:

The picture is even more grim for younger households who make up most of the important class of first-time homebuyers. Census data reveal that the biggest declines in homeownership were among households headed by those under 35 years of age, with rates plunging from their highest level of 43.6 percent in mid-2004 to 36.3 percent as of the third quarter 2012. Households aged 35 to 44 experienced a decline in homeownership from 70.1 percent at the beginning of 2005 to 61.8 percent as of the third quarter 2012.

The reasons for the decline in homeownership among the younger demographic are twofold. First, foreclosures caused some of these homeowners to become renters or cease to be households entirely and move in with family or friends. Second, tight lending requirements and weak labor markets made homeownership unattainable for many younger households, reducing the flow of potential new homeowners.

A similar story has played out when it comes to household wealth. According to preliminary data from the Federal Reserve’s 2010 Survey of Consumer Finances, from 2007 to 2010, overall household net worth declined nearly 40 percent, largely due to steep housing price declines. Households aged 35 to 44 experienced the largest drop with a stunning 54 percent median decline in net worth. The value of primary residences also fell the greatest in percentage terms for the youngest homeowners: Those 35 and under saw a 23 percent median decline, followed by 21 percent for those aged 35 to 44 and 65 to 74.

Obviously this has long term ramifications for the US housing market and will directly impact the demand for apartment housing for years to come.

Housing Authority of Winston-Salem Introduces Path Program

The Housing Authority of Winston-Salem is introducing a new program to help people move from public housing to home ownership. From a story in Yes! Weekly:

The Path program is available to all public-housing residents in Winston-Salem. Employment will be required for all participants over the age of 25. Those currently unemployed will be offered access  to one-stop career counseling through the Forsyth County JobLink Center, and training and job placement from Forsyth Tech — all free of charge.

(HAWS CEO) Woods said the Path program is the only one of its kind in the nation: No other housing authority has established a partnership with another development agency to provide new opportunities to residents.

The Path program fits into a broader vision promoted by the Housing Authority to break up large blocks of public housing…

Woods told the public-housing residents that those approved for the Path program will get the opportunity to move into the Oaks at Tenth, a 50-unit apartment community that is currently under construction one block away.

“If you qualify to move into this development, then you will be eligible to receive financial literacy assistance — find out how to budget your money,” Woods said. “If you’re having credit problems, they’ll help you resolve credit problems. Get your credit straightened out. If you have a job, no police activity in the household, your kids are going to school and you have children, then you become pre-qualified for a mortgage, the Housing Authority is guaranteeing to give you a voucher to help subsidize your mortgage so you can buy a house. You will be a homeowner at that point.”

The audience erupted in applause and an “amen” could be heard from one man in the back of the meeting room.

Woods said that the Winston-Salem Foundation has agreed to provide more than $1 million per year for tuition assistance to residents who are 18 to 25 years old.

Economist Argues Against Favoring Homeownership

From the Freakonomics blog:

The most fundamental fact about rental housing in the United States is that rental units are overwhelmingly in multifamily structures. This fact surely reflects the agency problems associated with renting single-family dwellings, and it should influence all discussions of rental housing policy. Policies that encourage homeowning are implicitly encouraging people to move away from higher density living; policies that discourage renting are implicitly discouraging multifamily buildings. Two major distortions shape the rental housing market, both of which are created by the public sector. Federal pro-homeownership policies, such as the home mortgage interest deduction, weaken the rental market and the cities where rental markets thrive. Local policies that discourage tall buildings likewise ensure that Americans have fewer rental options. The economic vitality of cities and the environmental consequences of large suburban homes with long commutes both support arguments for reducing these distortions.

For the full story visit http://www.freakonomics.com/2012/06/29/homeownership-and-suburban-sprawl/