WHERE WE ARE
The second half of the 20th century brought with it remarkable growth in homeownership. For the first four decades of the century, homeownership rates were relatively stable and remained below 50%, dropping as low as 44% in 1940. Following World War II, the rate of homeownership surged, propelled by the GI Bill, the acceptance of the 30-year fixed-rate mortgage, and the creation of FHA, VA, and the GSEs. By 1965, the rate reached 63%, and by 1980 homeownership stood at just over 65%. Starting in 1995, the homeownership rate took off on another ten-year tear until it peaked at 69% in 2004.
Then came the housing crisis of the mid-2000s. Millions of households lost their homes to foreclosure or short sale and became renters. The homeownership rate dropped 0.4% points during the Great Recession and another 3.9% since then. Today it stands at just under 63%, the lowest rate in half a century.
WHERE WE’RE HEADED
Experts at the Joint Center for Housing Studies at Harvard and at the Urban Institute project further declines in the homeownership rate in the next few decades. Per these projections, homeownership rates below 60% are possible within 20 years.
Why do these experts expect the homeownership rate to collapse to levels not seen since the 1950s? And how reliable are these projections?
While the Joint Center and the Urban Institute use slightly different approaches, both base their forecasts on two things: first, the typical homeownership rate of different age groups and different demographic groups; and, second, Census projections of changes in the population in each of these groups.
For instance, there is a strong relationship between homeownership and age. The homeownership rate is very low for people younger than 25. The rate rises rapidly through the mid-30s, then continues to rise more gradually, peaking in the early 70s. This relationship suggests that the national homeownership rate will start to decline as the Baby Boomers begin to leave the stage and the population of the U.S. becomes younger on average.
The increasing diversity of the U.S. population has an even greater impact on the homeownership projections of the experts. And the nation will certainly become more diverse. For instance, non-Hispanic whites comprise 73% of the Baby Boomer generation. In contrast, Millennials are much more diverse?only 59% of Millennials are non-Hispanic whites. Thus, as there are fewer Baby Boomers, the population of the U.S. will come to resemble the more-diverse Millennials.
Non-Hispanic whites historically have had homeownership rates 18 to 28% higher than African-Americans, Asians, and Hispanics. Relying on this historical pattern, the experts expect the homeownership rate to decline as the share of non-Hispanic whites in the population falls.
**Excerpts from article by Sean Becketti, VP and Chief Economist at Fannie Mae
Via Economic Focus