The Census Homeownership and Vacancy Survey released Thursday shows that the U.S. homeownership rose over the quarter to an unadjusted rate of 63.5%, up from a historic low of 62.9% last quarter but down slightly from last year. Optimists and pessimists alike have fodder for their cause. On the optimist’s side, household formation – whether it’s from new renter or new owner households – is good for both the housing market and the general economy, as some renters eventually become owners and new households drive demand for home-related goods and services. On the pessimist’s side, there are headwinds for those that want to own a home but can’t: prices and rents have outpaced incomes, credit standards are higher, and a high share of young households are still living with their parents. On the neutral side, the homeownership rate is not different from last year or last quarter when seasonally adjusted.
Given other evidence from the release, my views swing more with the optimists than the pessimists. Household formation surpassed 1.1 million, climbing from 944,000 last quarter. About 560,000 – or nearly half – of these households were owners, up from a loss of 22,000 last quarter. I think this is good news in light of the fact that millennials now make up the largest pool of potential new households. Though many are still living with their parents, they eventually will move out. First, they will rent, and as they settle down, and then they will buy. While we can’t know for sure they will own at rates of older generations, our survey work at Trulia shows 80% of Millennials want to own a home – the highest share of any cohort and the highest in the seven years we’ve run the survey. Given the headwinds, however, the homeownership rate is likely to get worse before it gets better.
