Homeownership Rate Slips during the Third Quarter

The Census Bureau reported the seasonally adjusted homeownership rate fell to 65.3% during the third quarter of 2012. In terms of rates across age groups (which are not seasonally adjusted), only those households headed by persons 65 and over registered an increase in the homeownership rate versus the third quarter of 2011. The under 35 and 55-64 householder cohorts saw the largest declines, with each showing a 1.7 percentage point drop-off in the homeownership rate compared to a year ago.

With the homeownership rate dropping to its lowest reading since the first quarter of 1996, it stands to reason that many of the underlying householder age groups have rates hovering at very low levels. Indeed, the homeownership rate among householders under 35 years of age is now at its lowest level on record at 36.3%–a 7.3 percentage point decline from its peak reading back in mid-2004. However, the largest percentage point decline for any particular homeowner cohort was among the 35-44 age group, as the homeownership rate remains 8.7 points lower compared to its cyclical peak.

Recent trends in homeownership rates among the younger age groups are concerning, and could affect the dynamics of homeownership over the long term—particularly if many of these individuals do not transition back from renters to buyers. Homeownership rates among the 45-54 and 55-64 cohorts will have a larger influence on the near-term outlook, since these two age groups are the largest blocks of homeowners. With the pace of job growth expected to pick up modestly going forward, household formations among these two specific cohorts should recover, including those households that were lost as deteriorating financial circumstances and/or some negative economic event (e.g. home foreclosure) forced people into combined living arrangements.

The homeownership rate is only one feature of this Census Bureau report, as it also provides data on trends in the vacant housing stock. The rental vacancy rate held steady at 8.6% during the third quarter, tying last quarter’s mark as the lowest reading on the rental vacancy rate since mid-2002. NAHB’s own Multifamily Vacancy Index revealed continued tightening of apartment supplies during the second quarter of 2012, though at a slightly lower pace. The homeowner vacancy rate declined to 1.9% during the third quarter of 2012, its seventh consecutive quarter-to-quarter decline and lowest level in 7 years.