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Expert economists: Latest drop in homeownership no big deal

Don’t worry, buying homes just at lowest since 1965

Homeownership rates just dropped to their lowest level since 1965, but don’t worry, it’s not a significant change, or so say the experts.

Actually, experts state that this fall in homeownership is more reflective of the rental market than anything else.

“The U.S. homeownership rate dropped to its lowest level since 1965, but the drop isn’t statistically significant from a year ago,” Trulia Chief Economist Ralph McLaughlin said. “However if the decline is real, it is more likely due to a large increase in the number of renter households than any real decline in the number of homeowner households.”

The homeownership rate for the second quarter of 62.9% was 0.5 percentage points lower than the second quarter in 2015 and 0.6 percentage points lower than the first quarter in 2016, according to the U.S. Census Bureau.

Click to Enlarge

Homeownership Rates

(Source: U.S. Census Bureau)

The Census Homeownership and Vacancy Survey provides optimism that the homeownership rate is stabilizing, a report from Trulia stated.

Trulia also noted the large drop in homeownership rate for Millennials, down 0.7 percentage points to 34.1%.

“While the Millennial homeownership rate continues to decline, it’s important to note that the decrease could be just as likely due to new renter household formation as it is their ability to buy homes,” McLaughlin said.

“Certainly low inventory and affordability isn’t helping their efforts to own, but moving out of their parents’ basement and into a rental unit is also a good sign for the housing market,” he said.

In the second quarter, the median asking price for rental units decreased to $847 per month.

Click to Enlarge

Homeownership Rates

(Source: U.S. Census Bureau)

On the other hand, the median asking price for sale units increased in the second quarter to $164,500.

Click to Enlarge

Homeownership Rates

(Source: U.S. Census Bureau)

“Homeownership was down in all four major regions, and among most age groups except one: The homeownership rate was up modestly year-over-year for 35-to-44 year olds, many of whom may have held off on buying a home during the recession, or may have been foreclosed upon and are only now re-joining the market,” Zillow Chief Economist Svenja Gudell said.

Click to Enlarge

Homeownership Rates

(Source: U.S. Census Bureau, Trulia)

While Gudell agrees that today’s report showed a growing trend in the rental market, he didn’t share McLaughlin’s optimism that there is no reason to worry.

“Broadly speaking, the falling homeownership rate is a sign that renting isn't only for those just starting out or making a transition, but is becoming an increasingly viable longer-term option for many households,” Gudell said.

“It also means incomes are not yet rising quickly enough to broadly support new homeownership, and that inventory remains too tight to allow for meaningful access to affordable housing,” he said.

“Household formation rates have returned to the slower pace seen in 2012 and 2013, and what growth there was almost entirely on the rental side, another sign that income growth is failing to keep pace with growth in housing costs,” Gudell concluded.

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