With housing leading the economy and a noticeable, renewed focus on the importance of “home” as the COVID-19 pandemic continues, it’s hard to remember that just a few years ago some analysts and pundits were quite bearish when it came to the future of homeownership. That line of thinking claimed that for years to come the homeownership rate would continue the decline that began in 2005.
During the housing boom of the early 2000s, the homeownership rate peaked at 69.2%. However, the subsequent foreclosure crisis during the Great Recession, combined with increasing housing affordability challenges, led to an 11-year decline for the rate. Homeownership bottomed out at a 62.9% share of households during the second quarter of 2016.
Since that time, and contrary to many forecasts, homeownership staged a key rally, rising to 65.3% just prior to the COVID-19 recession. These gains were driven by younger households. The first quarter of 2020 saw some of the strongest gains for homeownership since the Great Recession. The timing of this pivot is not surprising as it marked a demographic moment in which more millennials were looking for their first home as they entered their 30s.
These gains are consistent with a broad set of research findings that link homeownership with positive social, community, and household-level outcomes. For example, homeownership is positively associated with more voter and volunteer participation, better schools, improved health, and better financial and job prospects. The most obvious such impact is from the Federal Reserve’s Survey of Consumer Finances, a once-every-three-year wealth survey, that finds that the typical homeowner has more than 40 times the wealth of a typical renter.
Despite trendy theories about the “creative class” and notions that millennials would never want to live in the suburbs, the long decline for homeownership was not about a lack of demand for homeownership; it was due to a lack of means and attainable supply. The Great Recession had long lasting impacts on finances for younger households and a yearslong period of underbuilding made finding a home within one’s budget that much harder.
And then the virus-induced downturn of 2020 arrived, with low interest rates, concerns about higher density living (public health, governance), and renewed housing demand, which rebounded much faster than other parts of economy.
Unfortunately, we do not have a good measure of homeownership during the second and third quarters. Our preferred reading, the Census Bureau Housing Vacancy Survey (HVS), indicates the rate increased from 65.3% to 68.2% in the second quarter alone. However, due to a change in the survey’s collection process, this number is likely too high. Other housing data (new and existing home sales) suggest the rate increased, but not to a 68% reading. And until the HVS returns to its standard approach, we won’t have a good sense of the quarter-to-quarter movements in homeownership.
So while the HVS is likely going to be an unreliable guide until the start of 2021, it seems clear that the demand for homeownership—particularly for single-family homes—remains solid. The suburban shift, a marginal increase in demand for lower-density housing as a result of the virus crisis, has caused some suburban, exurban, and rural markets to see historic levels of demand. Moreover, declines in use of some commercial real estate like offices will also result in higher demand for residential space. These factors are thus contributing to ongoing gains for single-family construction and remodeling.