…And That’s Not a Bad Thing
With distressingly low supply and unprecedented price surges, the homeownership rate is stalling: 64.2 percent in the first quarter of 2018, according to the government—no improvement quarter-over-quarter, and negligible progress year-over-year. Is the nonstarter worrying?
In the first three months of 2017, the homeownership rate was 63.6 percent; in the last three months, it was 64.2 percent, the U.S. Census Bureau’s Quarterly Housing Vacancies and Homeownership Report shows.
“It may be tempting to read the lack of movement in the Q1 2018 homeownership rate as a negative, especially on the heels of a string of incremental quarterly gains throughout 2017…but expecting consistent growth in the homeownership rate is unrealistic, and holding steady in the face of headwinds that emerged in the first quarter—including rising mortgage interest rates and continued lack of inventory—should be considered good enough, at least for now,” said Dr. Svenja Gudell, chief economist at Zillow, in a statement.
“A national homeownership rate around the 64 percent level we’re at now is much more in line with historic averages, and feels sustainable given current conditions,” Gudell said.
“The homeownership rate continued its steady annual ascent to 64.2 percent in the first quarter of 2018, up from 63.6 percent this time last year, but unchanged from last quarter, in the face of fierce headwinds for homebuyers,” says Cheryl Young, senior economist at Trulia. “While demand is buttressed by healthy consumer fundamentals, such as low unemployment and robust job growth, chronically low inventory and skyrocketing prices plague the housing market.”
The challenging conditions are not deterring first-timers and Hispanics, with the homeownership rates for both segments up year-over-year. The under-age 35 homeownership rate was 35.3 percent in the first quarter of this year, up from 34.3 percent in the first quarter of 2017, while the Hispanic homeownership rate was 48.4 percent, up from 46.6 percent.
“The homeownership rate among those 35 years old or younger is up a full percentage point compared to a year ago, indicating first-time buyers are finding some success, despite difficulties,” said Gudell. “The Hispanic homeownership rate was up substantially from the norms of the past few years and is closing in on 50 percent. The black homeownership rate, while still lagging well behind other groups, held steady and maintained the gains made over the past year.”
“Millennials have emerged as the most dogged homebuyers, with those under 35 far outpacing the overall annual homeownership rate change, despite contending with the most vexing portion of the housing market,” Young says. “Millennials make up the largest share of those seeking starter homes, a portion of the market that saw inventory plummet 14.2 percent and prices leap nearly 10 percent year-over-year in Q1 2017.”
Though the general homeownership rate is roadblocked, the demographic drivers can be the motivator for new starter stock.
“The homeownership rate climbing out of its 50-year low should be seen as an opportunity for builders in the for-sale space,” says Young.