Why Is the Homeownership Rate Still Falling?

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The homeownership rate in the U.S. continued to decline in 2015, and there are several potential reasons, according to the inaugural issue of Housing Market Perspectives: On the Level with Bill Emmons.

The national homeownership rate fell to 63.7 percent in 2015, the 11th straight year of decline following a peak of 69 percent in 2004. Emmons, an assistant vice president and economist with the St. Louis Fed, offered two possible reasons for the continued decline.

An Increase to Unsustainable Levels

Homeownership increased sharply between 1994 and 2004. Emmons noted: “Perhaps this period represented an unsustainable shift of many financially weaker families out of rental housing into homeownership, which subsequently reversed with the bursting of the housing bubble and the onset of the Great Recession.”

Supporting this theory is the fact that homeownership rates of younger, less-educated and nonwhite families—or the families that are traditionally financially weaker—have fallen by more than the overall average. These are also the families that moved into homeownership most rapidly during the housing boom.

Owning a Home Simply Isn’t as Attractive

Emmons also explained that homeownership may not be as attractive or feasible for several reasons:

• Virtually all homeowners saw large fluctuations in house values in recent years. Millions even lost their entire investment due to foreclosure.
• Mortgage borrowing is more difficult and expensive today.
• Owning a home essentially means being tied to a specific area, which may not be as attractive to younger generations.

Emmons noted that this scenario could mean declining homeownership rates for years to come. “After all, homeownership rates in the low- to mid-60 percent range were unprecedented before post-World War II political and social changes turned the U.S. into a majority homeowning society.”

Conclusion

Emmons concluded by saying that it’s too early to tell which scenario is occurring. “Perhaps there are elements of both explanations at work. In any case, it appears unlikely that the U.S. homeownership rate will return to its historic peak of 69 percent anytime soon.”

Additional Resources

• On the Economy: Why Has the Share of Mortgage Debt in Default Fallen?
• On the Economy: Is the U.S. Due for Another Recession?