Homeownership Rate Inched Lower During the First Quarter

May 1, 2013

The homeownership rate declined slightly during the first quarter of 2013, falling to a seasonally adjusted reading of 65.2%. This marks the lowest reading since the end of 1995 and a 4.2 percentage point drop versus the peak observed in mid-2004. While the homeownership rate is somewhat lower than its 20-year historical average, the rate has not fallen as low as some analysts anticipated, due in part to a sluggish pace of new household formations. In other words, though the numerator (owner-occupied households) has fallen, still-slow growth in the denominator (total occupied households) has kept the homeownership rate from falling lower.

homeownership2

Across age groups, homeownership rates either remained flat or declined versus the first quarter of 2012. The largest percentage point decline in the homeownership rate occurred within the group of households headed by someone aged between 35 and 44 years (1.3 percentage points), followed by a 0.8 percentage point decline within the 55-64 householder cohort. Each of the householder cohorts have registered declines in the homeownership rate since peaking around the mid-2000s, but the relative degree of contraction across cohorts has been evident.

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Householders aged between 35 and 44 years have experienced the largest decline in homeownership rates, falling ten percentage points in the past eight years and reaching an all-time recorded low of 60.1% during the first quarter of 2013. By contrast, the homeownership rate for households headed by someone 65 years or older is currently 1.4 percentage points below its peak and has remained above 80% in all but two quarters since the second half of 2007.

The continuing slide in homeownership rates among the 35 to 44 and under 35 householder age groups are a concern for longer-term housing demand going forward, fluctuations within the 45-54 and 55-64 cohorts will affect the outlook with greater immediacy. Combined, these cohorts are the largest groups of homeowners and represent a primary source of “move-up” demand, whereby current owners trade their existing homes for newer and/or larger living spaces. The rate at which householders in these age groups become homeowners (again, in most cases) will be an important part of the housing market’s overall recovery.

vacancy rate

The Census Bureau’s quarterly survey also provides estimates of vacancy rates among the stock of owner and rental housing. The rental vacancy rate continued its downward trend during the first quarter of 2013, declining 20 basis points from a year ago to 8.6%. In addition, on a 4-quarter moving average basis, the rental vacancy rate dropped to its lowest reading since the end of 2001. The homeowner vacancy rate dipped 10 basis points compared to the first quarter of 2012 and has held steady at a 4-quarter moving average of 2% in each of the last two quarters. In addition, the homeowner vacancy rate has trended significantly lower since the toughest days of the housing market downturn and remains in range of levels occurring prior to the boom and bust period.


NAHB MVI Indicates Healthy, Stable Market for Existing Rental Apartments

December 12, 2012

In the third quarter of 2012, NAHB’s Multifamily Vacancy Index (MVI) improved 3 points to 33, largely offsetting the previous quarter’s 5 point swing in the other direction.  The MVI is a measure of property owners’ sentiment about vacancies in existing rental apartments, so lower numbers are better.

MVI 12Q3After hitting a record high of 70 in the second quarter of 2009, the MVI began to improve consistently, until dropping to 33 at the end of 2010.  For the past two years, the MVI has remained fairly stable in the low-to-mid 30s, which is as low as the vacancy index has ever been (the data go back to 2003).

When conditions are changing, the MVI generally turns at least one quarter before the Census Bureau’s hard measure of rental vacancies.  In 2009, improvement in the Census rate of vacancies in buildings with at least 5 apartments began one quarter after the MVI and was much more gradual.  Since then, the 5+ rental vacancy rate has continued its gradual drift downward, and at 9.1 is now as low it’s been since 2000.

With both the MVI and 5+ vacancy rate currently at healthy levels, there’s no strong reason to suspect either will change drastically in the near future.

The MVI is one of two main sentiment indices produced from NAHB’s quarterly survey of multifamily developers, property owners, and managers; the other being the Multifamily Production Index (MPI).  For more information, including a complete history for both indices and all of their components, see NAHB’s web page for the MPI & MVI.


Homeownership Rate Slips during the Third Quarter

October 31, 2012

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.


Homeownership Rate Drops to Lowest Point in 15 Years

April 30, 2012

After hovering around 66 percent in each of the last three quarters, the Census Bureau reported the seasonally adjusted homeownership rate fell to 65.5 percent during the first quarter of 2012. With this latest decline, the homeownership rate has slipped nearly 4 percentage points from its peak during the mid-2000s and its current level marks the lowest reading since 1997. Among age groups, the 65 years and older cohort has been the only age group to experience some stability in the reported homeownership rate throughout the housing market’s downturn. With an 8.7 percentage point decline (down to 61.4 percent), the homeownership rate within the 35-44 age group has fallen the most among any cohort. The other cohorts have also experienced appreciable declines in homeownership, with drops of 6.8 and 6.1 percentage points for the under 35 and 45 to 54, respectively. The 55 to 64 cohort has registered a smaller rate of decline compared to the other age groups (-4.6 percent), but its homeownership rate also slid to its lowest point on record during the first quarter of 2012.

Although younger households are likely not doubling up with roommates, moving back in with their parents and/or re-entering school to the same extent as they were at the peak of the recession, the slump in homeownership rates among these cohorts will likely continue over the near term. Any recovery in housing demand among this age group will be blunted by the fact that the wide majority will opt for rental units. Since the 45-54 and 55-64 age groups account for nearly half of all owner-occupied households combined, shifts in homeownership among these cohorts will have the largest effects on homeownership rates, and other aspects of the housing market, going forward. As the labor market continues to make progress over the next several quarters and households in the 45-54 and 55-64 age groups see their own economic situations improve, they will likely begin to re-constitute themselves and the majority of these formed households are expected to be homebuyers.

The quarterly census report also examines trends in the vacant housing stock. As of the first quarter of 2012, the rental vacancy rate dropped to 8.8. This marks the lowest reading for this measure in nearly a decade. This result appears to match up with other results that show rising absorption rates for apartment properties even as the supply of new multifamily units continues to climb. The homeowner vacancy rate declined for the fifth consecutive quarter, contracting to 2.2%, which was also its lowest level observed since mid-2006.


MVI Shows Ongoing Stability in the Market for Existing Rental Apartments

March 12, 2012

In the fourth quarter of 2011, NAHB’s Multifamily Vacancy  Index (MVI) declined for a second consecutive quarter—from 35.1 to 34.7   The MVI is based on a quarterly survey of NAHB’s multifamily members, tracking their sentiment about the market for existing apartments on a scale from 0 to 100.  A declining MVI is a positive change, as it indicates that sentiment is moving toward fewer vacancies. 

The MVI has remained essentially stable for roughly a year, hovering in a range between 33.3 and 36.1.  This followed an extended period during which the MVI remained above 40—often far above—from mid-2007 through mid-2010, roughly coinciding with the period when the Census Bureau’s vacancy rate in buildings with 5 or more apartments was  above 11 percent (although the 11 percent-plus 5-plus vacancy rates didn’t begin until 2008).

 

The Over its 9-year history, the MVI has generally foreshadowed movement in the Census 5-vacancy rate.   In the third quarter of 2011, for example, the 5-plus vacancy rate increased substantially—from 10.0 to 10.8 percent.  The relative stability of the MVI during this period suggested that the third-quarter surge in the Census measure was likely to prove a temporary setback that would be reversed in the near future.  This proved to be the case in the fourth quarter, as the Census 5-plus vacancy dropped back to 10.1 percent, essentially the same as it had been in the second quarter of the year.

 For more information, including historical tables for the MVI, see http://www.nahb.org/reference_list.aspx?sectionID=238.


Tightest Housing Markets in the U.S.

March 8, 2012

A simple measure of tightness in a market for owner-occupied housing is the homeowner vacancy rate (number of homes for sale divided by the number either for sale or owner-occupied). Builders are often interested in markets that are tight by this measure, because it indicates prospective buyers will have difficulty finding a suitable home among the available existing units. 

Several federal government surveys provide homeowner vacancy rates, but the one with the greatest geographic detail by far is the Census Bureau’s American Community Survey (ACS).  In a recent study, NAHB tabulated the most recent (2010) ACS this data for all metropolitan areas in the country.

Overall, the tightest markets tend to be relatively small: Corvallis, Oregon (with a homeowner vacancy rate of 0.23%), Lebanon, Pennsylvania (0.49%), Billings, Montana (0.54%), San Angelo, Texas (0.61%), and Eau Claire, Wisconsin (also 0.61%). 

Because it may seem difficult to compare these areas to larger markets, NAHB also looked separately at the 27 metropolitan areas that have at least 500,000 owner-occupied homes.  Homeowner vacancy rates for these 27 areas range from 1.43 percent to 4.65 percent.  The ten tightest large markets are shown below.

The two tightest large markets in 2010—Nassau-Suffolk, NY and Santa Ana-Anaheim-Irvine, CA—were also the two tightest large markets the last time NAHB looked at the ACS data in 2008.

The NAHB study provides a rundown of the top-10 metros according to nine key measures, including: owner-occupied housing units; homeownership rate; home owner vacancy rate; share of single-family detached homes; value of homes owned; home owner incomes; growth in stock of single-family detached homes; and share of homes built recently. It also has a spreadsheet that shows how more than 350 other metro areas stack up in each category.


Declining Multifamily Vacancy Rates Point to Future Growth

December 12, 2011

Data from the Survey of Market Absorption (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, reveal limited weakness in the multifamily sector for the first half of 2011. However, declining multifamily vacancy rates are a hopeful sign for future multifamily market expansion, which is consistent with improving responses reported in NAHB multifamily surveys.

The SOMA tracks completions and market absorption (either units rented or units sold after construction of the property is complete) for multifamily rental and for-sale housing in 5+unit properties. Data released in December report absorptions for the third quarter of 2011 for properties completing construction in the second quarter of 2011.

 

For unfurnished apartments, the SOMA data reveal some softness in the rental market for the first half of 2011. Rental apartments exhibited a fairly stable absorption rate of around 63% for most of 2010, but this rate declined to 56% in the first quarter of 2011 and 50% in the second quarter.

However, this decline in the absorption rate of newly constructed rental apartments occurred during a period in which the rental vacancy rate was also, counterintuitively, falling. From the middle of 2010 until the middle of 2011, the rental vacancy rate fell from 10.6% to 9.2%. This fact suggests that the absorption rate for new apartments, as well as multifamily completions, will soon rise to meet increasing rental demand. As noted earlier, this is consistent with improving measures of multifamily market confidence, according to NAHB surveys.

With respect to for-sale condominium and cooperative multifamily units, the story is also mixed. Completions are at record-lows, with 2nd quarter completions of for-sale multifamily units down more than 90% from levels reported five years ago. Nonetheless, for those units being placed in service, the absorption rate of 61% is at its highest level since the third quarter of 2007.

The owner-occupied vacancy rate for units in 5+ properties is also falling. Reaching a twenty-year high of 10.4% in the final quarter of 2010, the vacancy rate for owner-occupied multifamily units has since declined to 8.6% for the second quarter of 2011.

These data, NAHB survey results, and significant amounts of pent-up housing demand that will emerge as rental demand first, suggest that construction of multifamily units will continue to grow in 2012.