Homeownership: The Real Story Behind The Headlines

The big housing news this week is that the homeownership rate has dropped to 63.4% which represents the lowest rate in 48 years. That news definitely is making headlines. Yet, to fully understand what this means we have to look at the story that created these headlines.

There is no doubt the homeownership rate has declined since the housing crisis. Here is a graph showing the homeownership rate over the last twenty years. It skyrocketed during the housing boom and has steadily fallen since the bust:



The dramatic fall in the rate over the past year must be looked at very closely. The rate is determined by the "number of households" who rent versus those who own. Let's assume you have nine friends that live on their own (thus forming a household); six of them own and three of them rent. That would mean that 66.6% (6 out of 9) of your friends that live on their own are homeowners.

Now, let’s assume you have another friend who has been living with his parents. He would not be considered a separate household because he lives within his parents’ household. Once that friend moves out of his parents’ home and gets a place of his own, he will become part of the household count. Let’s assume, since he is just starting out, that he moves into a rental.

When he does, you now have ten friends that live on their own. If six still own their home and four of your friends now rent, the homeownership rate of your friends drops to 60% (6 out of 10). The number who own didn’t decrease; but the percentage decreased.

With the economy improving and job numbers looking better, more and more young adults are beginning to move out and get a place of their own. However, most will start in a rental situation thus driving the "percentage" of homeownership down. Auction.com explained the most recent drop in homeownership rate this way:

"This occurred as household formations popped, implying millennials are riding an improved labor market out of mom and dad’s house. Roughly a third of millennials live at home according to Census data, an elevated figure. Continued gains in the labor market will coax increased numbers out into their own places, a majority of which will be apartments, as this age cohort lacks the financial wherewithal to buy."

What does this mean to the future of homeownership?

The great news is that study after study has shown that Millennials aspire to homeownership as they still see it as a major part of the American Dream. As they get more comfortable with their financial situation, many of the Millennials who finally made it out of their parents’ homes this year will become homeowners over the next several years. An increase in homeownership rates will follow.

39017eb3 1d11 4bbb bd85 ffa393950cf7 4c16d181 4af1 4d95 a747 bc73b6b7468c 0418d717 15f6 4034 a3be 2292a5c66a7d aa3c447a 5d06 4a0e 97ef ec0795d5cd36 eba06f6e 6708 4106 b118 a9890271bb1b 77691615 389e 4abf 81ef df6409211400 8491b268 1386 4f78 b2df c57909116521 0853588b c4fe 4930 adf3 483899bc4d31 edab0d5a 3eee 433c a6bf 5c7aa26dd548 ee195942 8638 4ee6 a6a5 5470eaf495fa 10b06616 5d51 4868 8c17 1d5a5f6d3570 5addbe2c 1131 416c 9f82 037b549b9653 cc7ec783 bf2d 4a09 898f c460d725fdcc 359eb2b6 4487 4de8 905f 48fef87e5449 5acf0fe6 9e51 43a1 86d1 f27cecccdd32 2876ba6a a562 4b47 9693 7531f45f1903 61427b2f 5b6d 48be b5cb b9a93b94ddc0 cdb49625 150f 4c8e 878a fbf480143d06 c8059576 73e0 43ce 85ad 0cccc9a9adbd 3a703b89 fa02 4312 b82b ee5e4004cb00 bf108406 9cbd 4a22 9b62 0c34eafa4492 0ad25862 18b3 4f17 918d d0d4723064c7 52132548 2590 4961 afa9 1bf51335ceca