Posted in Economy, National Housing Market | Posted on 05-26-2015 | Written by Metrostudy News
- We are in the strongest period of renter growth going back to the 1960s, when the Census began tracking rent vs. own.
- Each of the three younger age segments have experienced a shrinking number of home-owning households, totaling a decline of 6.85 million over the last ten years.
- The 55 to 64 group is unique in that the homeownership rate has shrunk (82 percent to 76 percent), yet the strong growth in the number of households allowed the number of homeowners to grow by 3.9 million.
MAY 2015 – Have you ever taken your temperature and been relieved to find out you had a fever? You say to yourself, “No wonder I feel so bad.” I had a similar moment while researching national homeownership trends, which dropped to a 25-year low of 63.7 percent in 1Q15. What is less often reported is that the number of households has grown steadily during this time from just under 93 million in 1989 to over 123 million in 2014. Furthermore, even though the percentage of homeowners is unchanged compared to 25 years ago, because of overall household growth there are now nearly 20 million more home-owning households in the U.S. compared to 1989.
The problem has to do with trends in the last 9 years. During this time the number of households has grown by nearly 10 million (plus 9 percent), yet the number of home-owning households has grown by only 660,000, which is less than 1 percent growth. Conversely, the number of rental households has grown by 9.2 million or plus 26 percent. This certainly explains why the apartment market has been so robust. Currently, multi-family permits (mostly apartments) account for 36 percent of all permits, compared to an average of 19 percent from 2000 to 2006. This is the strongest period of renter growth going back to the 1960s, when the Census began tracking rent vs. own.
That is one step to understanding the lack of strength in homebuilding, but it doesn’t totally explain the problem. Therefore I analyzed homeownership by age group, particularly over the last 10 years. First of all, in households where the head of household is below 35 years of age, overall household growth has been very flat. This is expected to change as echo boomers (children of baby boomers) age into this category, but for now the household count is very steady. Unfortunately, the number of home-owning households is shrinking, a decline of 1.85 million compared to 2004. This demographic is saddled with student loans, and they appear to value the benefits of renting … for now.
The 35 to 44 age range was easily the most devastated by the Great Recession. Not only is this a shrinking demographic (baby busters), but homeownership has shrunk from 70 percent to 59 percent in the last ten years. The combination of these two forces resulted in a decline of 3.8 million home-owning households in the last ten years. Many of these households may be inclined to own, but they need to repair their credit and get on firmer financial footing. This is also true to some extent of the next older category, 45 to 54, where the number of home-owning households has declined by 1.2 million since 2004. That means each of the three younger age segments have experienced a shrinking number of home-owning households, totaling a decline of 6.85 million over the last ten years.
The 55 to 64 group is unique in that the homeownership rate has shrunk (82 percent to 76 percent), yet the strong growth in the number of households allowed the number of homeowners to grow by 3.9 million. These are the baby boomers, and they have driven the move-up market and kept the homebuilding industry off the mat. The oldest demographic at age 65+ is the largest group, nearly 29 million strong as of 2014. The homeownership rate is flat at 80 percent, and the number of home-owning households has grown the most – plus 4.3 million. This group will continue to grow as Americans live longer and as baby-boomers age into this segment. Combined, the two older household segments have contributed 8.2 million new homeowners in the last ten years.
Even though homeownership has continued to decline well after the end of the Great Recession, forces should begin to push the homeownership rate modestly higher in the coming years. When this happens, it will signify an important shift for our industry. This shift combined with a growing economy (hopefully), will fuel a stronger homebuilding market and begin to take away some of the energy that has been dedicated to apartments. This will be the aspirin we need to shed the low-grade temperature we’ve been running as an industry over the last few years.
Ben Sage, Director of Metrostudy’s Mid-Atlantic Region, has been researching and analyzing housing markets since 1994. He regularly meets and consults with many of the top homebuilders in the country as well as with lenders, developers, investors, and utilities concerning trends in the local economy and their effect on the real estate market. Ben can be reached at email@example.com. For more information, visit www.metrostudy.com.