Due mainly to slow wage growth, rising home prices, tighter mortgage credit and a general lack of confidence in the economy, the U.S. homeownership rate fell to 64.4% in the third quarter – down from 64.7% in the second quarter and down from 65.3% in the third quarter of 2013 to reach the lowest level since the first quarter of 1995, the Census Bureau reports.
The homeownership rate averaged 64.5% from 1965 to 1999; it peaked at 69.2% in June 2004, according to the report.
Driving the decrease is the fact that first-time home buyers have been mostly shut out of the market, due in part to stricter lending standards and rising home prices. Normally, first-time buyers represent about 40% of the market; however, a recent report from the National Association of Realtors shows that share of first-time buyers in September was about 29%.
According to the Census Bureau, the homeownership rate in the third quarter was highest among people aged 65 and over (80.0%) and lowest for those under age 35 (36.0%). The homeownership rate for those aged 35 to 44, 45 to 54 and 65-plus was lower when compared to the third quarter of 2013, while the rates for those aged under 35 and those aged 55 to 64 were not statistically different from a year ago.
Also driving the decrease is a general change of attitude toward housing: Today, many millennials feel that it is better to rent than to own because it provides mobility and the freedom to pursue work in any region of the country without being tied down by homeownership (although recent research shows that most millennials are just as desirous of homeownership as older generations – it's just that they face a different reality). What's more, many millennials saw their parents get burned by falling home prices in the early years of the recession, causing them to feel that homeownership is a risky investment.
As a result, the U.S. has shifted toward a renter nation. According to the report, the rental vacancy rate reached 7.4% in the third quarter, down 0.1% compared to the second quarter and down 0.9% compared to the third quarter of 2013 to reach the lowest level since the first quarter of 1995.
Meanwhile, the homeowner vacancy rate of 1.8% was just 0.1% lower compared to the second quarter and 0.1% lower compared to the third quarter of 2013. It should be noted that population growth, residential construction and household formation are also factors that drive the homeownership rate.
About 13.5% of the housing units in the U.S. (including rentals) in the third quarter were vacant. Owner-occupied housing units made up 55.7% of total housing units, while renter-occupied units made up 30.8%. Vacant year-round units comprised 10.1% of total housing units, while 3.4% were for seasonal use.
About 2.5% of the total units were for rent, 1.0% were for sale only, and 0.9% were rented or sold but not yet occupied. Vacant units that were held off-market comprised 5.7% of the total housing stock. Of these units, 1.7% were for occasional use, 1.0% were temporarily occupied by persons with a primary residence elsewhere, and 2.9% were vacant for other reasons.
Regionally, the homeownership rate was highest in the Midwest (68.8%) and lowest in the West (59.4%). The homeownership rates in the Northeast, Midwest and South were lower than the rates in the third quarter 2013, while the rate in the West was basically unchanged.
To read the full report, click here.