The homeownership rate fell again in the third quarter of 2012. The latest 65.3 percent ownership rate (seasonally adjusted figures) is the lowest since 1996, when Bill Clinton was campaigning for his re-election. But there is good news in the data as related to ownership. The number of homeowners grew for the second consecutive quarter (see graph below). The number of renters also increased, attesting to continuing solid rental housing demand. Both owner and renter population can rise at the same time (and not be a trade-off) when household formation grows.
- Over the last decade, the housing market has gone through a dramatic swing. The large increase in unemployment which resulted from the recent recession coupled with nearly 4 million foreclosures since 2008 reduced the number of homeowners. As a result the homeownership rate fell nationally and in most states across the country.
- In 2000, Michigan, Minnesota and Maine were all in the top 5 states as ranked by their homeownership rate. Michigan experience significant economic turmoil during the recession of 2001-2002 as did Minnesota and Maine following the housing bubble.
- West Virginia and South Carolina were the only states to remain in the top five by 2011. Both states experienced an expansion of employment over the decade with relatively stable increases in home prices and limited exposure to subprime lending.
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There are over 310 million people living in the country, forming approximately 113 million households. Roughly speaking, about 3 people live under the same roof, on average.
Every year about 2.5 to 3 million additional people are added as the number of births run at around 4 million per year, deaths at 2 million, and 1 million or so are added through immigration inflow. Normally, such population gains would translate into 1 million household formations each year, which would directly translate into 1 million in housing demand in the form of either renters or homeowners. But household formation came to a halt because of difficult economic circumstances, with more people doubling/tripling up and a greater number of young adults living with their parents.
Interestingly, the squashing of households has been principally in the number of homeowners. From the bursting of the housing bubble, homeowner households have not increased at all in the past six years. But the number of renters has steadily risen. Rents will rise as a result. Rising rents also mean added pressure to broader consumer price inflation since this rental component is one of the bigger weights in the inflation calculation (more so than even gasoline or food prices).
The U.S. homeownership rate rose a notch in the third quarter, with 66.1 percent of households owning a home – up from 66.0 percent in the prior quarter. However, the trend has clearly been downward since the bubble situation of several years ago. Just maybe, however, we’re starting to venture into sustainable homeownership, since the current ownership rate matches up with 1998 levels. Back in 1998, there was no mention of a housing bubble or unsustainability in the media or in the academic literature, so the current homeownership figures may indeed indicate the right stabilizing level for the country. Other housing data have also pointed to stabilization (though not a genuine recovery) in recent months – such as home prices, home sales, and housing starts.
If the homeownership rate stabilizes at the current 66 percent or so level then the natural increases in population (3 million a year) and households (about 1.1 million a year during normal times) in the U.S. will bring about 700,000 additional homeowners each year. Total home sales and business opportunities for REALTORS® would arise from these new set of homeowners. Not to mention the added turnover rate among the existing 75 million home owning families, which was exceptionally low in recent years, due in part both to the weak economy and to the many underwater homeowners who have been unable to move without a short-sale approval from the banks.