Is Dip in Homeownership Rate A Sign of Things to Come?

Homeownership rates fell for the first time in more than two years, but there is a debate as to whether this is just a temporary blip or the start of a decline.

Ever since 2017, homeownership rates have been climbing to historic 64.8 percent in the fourth quarter of 2018.

However, according to data released in April by the U.S. Census Bureau, that number slipped to 64.2 for the first quarter of 2019.

Considering how meteoric the rise had been during the previous two-plus years, a marginal slip like this is noteworthy.

The National Association of REALTORS® also saw a minor decline in the first quarter, identifying a drop of 0.4% in existing home sales in the month of April, which followed a sales drop in March as well.

A decline was inevitable at some point, especially with the rate peaking at an all-time high last December, but there could be a number of reasons that this drop-off came when it did.

Millennials and now the first homeowners from Generation Z have been the driver for the rise in the homeownership rate over the past two years.

However, because of the demand for housing, the home prices have been rising as well. With that average price reaching a tipping point, the combination of a lack of affordable housing and mounting student loan debt are the likely culprits with the homeownership rate taking a small step backwards.

Specifically, the homeownership rate for people under the age of 35 dropped from 36.5 percent to 35.4 percent in just three months.

An economy in flux likely contributed to the caution being taken with buying a home in the first quarter, and once it stabilizes it could in turn level out the homeownership rate from one quarter to the next.

And that’s an important takeaway as well – just because there was a one quarter dip in the homeownership rate doesn’t mean that it is expected to continue to slide.

The amount of people who own homes changes often and because of that volatility, one quarter can not accurately depict the overall trend of homeownership. That usually can’t be established until after at least a full year’s worth of data.

Take this instance for example, although there was a drop off of 0.6 percent since December, the rate is identical to where it was at the end of the first quarter in 2018 – so over the course of a full year, there’s been no change, despite some peaks and valleys along the way.

Lawrence Yun, NAR’s chief economist, said he is not overly concerned about the 0.4% dip in sales and expects moderate growth very soon.

“First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” he said. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

Not to mention, the number of owner households increased by approximately 1 million in the first quarter, which indicates that properties are still being purchased ahead of expectations even if the percentage of homeowners slipped.

Additionally, with mortgage rates dropping even more compared to yearly averages, more Americans could be enticed to buy a home.

According to REALTOR.com average mortgage rates for a 30-year fixed-rate loan have fallen from nearly 5 percent in the fall of 2018 to just over 4 percent now.

Couple that with the concept of tax-free savings accounts being set up in many states for first-time homebuyers and there’s a good chance that the homeownership rate will either stabilize or increase again before 2020.

Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, told the Wall Street Journal he believes the first-quarter drop in the homeownership rate is temporary.

Despite significant student loan debt, Millennials are still eager to buy homes.

“We had a really, really volatile end of 2018,” Kan told the Journal, chalking that up to swings in the stock market as well as other financial fears rather than about a slowing economy. “Most of these [younger] borrowers are going to be in tighter financial circumstances. They are going to be more vulnerable to big swings.”