Mortgage

Before reading into the homeownership rate drop…

Kolko puts numbers into perspective

The national homeownership rate for the second quarter declined to 64.7% from 64.8% in the first quarter and from 65% a year ago, but this number doesn't tell the whole story.

Jed Kolko, chief economist for Trulia (TRLA), explained in a New York Times’ article that the problem with the Census Bureau report is that it follows similar faulty measurements as the Bureau of Labor Statistics’ unemployment report.

In the unemployment report it's important to adjust for labor force participation, which tanked in the wake of the Great Recession. (Check out this HousingWire magazine piece for a more thorough and visually friendly explanation of the problems surrounding the jobs report.)

A parallell conclusion can be seen in the homeownership rate. 

Households can be one of two things: owners or renters. The homeownership rate equals the share of households that are owners. But look at people instead of households, and people have a third option: living under someone else’s roof. When young adults live with their parents, or older people live with their grown children, or people live with housemates, they count as part of someone else’s household.

Those people are technically neither owners nor renters, and they don’t count in the homeownership rate. That’s why the homeownership rate can mislead: It omits people who are not in the housing market themselves as owners or renters.

Kolko goes on to explain, “Let’s watch first for an increase in the headship rate. And we should not be alarmed by the falling homeownership rate if it’s falling because people are renting their own place instead of living in someone else’s.”

The bureau’s homeownership report also noted that the rental vacancy rate dropped to 7.5% after hovering around the 8.2% range for the past year.

The homeowner vacancy rate barely nudged from 2% in the first quarter and is the same as a year ago, coming in at 1.9% in the second quarter of 2014. 

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3d rendering of a row of luxury townhouses along a street

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