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Looking Ahead: Future of Homeownership Rates

by Jonathan Spader | Jul 01, 2017
A historic decline in the homeownership rate has generated substantial discussion among economists over the future of homeownership in the United States. After peaking at 69.2 percent in 2004, the national homeownership rate declined steadily to 63.4 percent in 2016 according to the Housing Vacancy Survey.
While this decline returned the overall homeownership rate to approximately the level it held between 1985 and 1995, the homeownership rates for multiple age groups have fallen well below their 1995 levels. So, what does this mean?

While no one can predict the future with certainty, our recent research has produced several insights that may clarify the likely future path of homeownership over the next two decades. As a Realtor® working in the housing industry, here are four things you should know as you interpret housing market research and data going forward:

1. The foreclosure inventory has only recently returned to pre-crisis levels. The number of properties in the foreclosure inventory reached 585,000 at the end of 2016, down from a peak above 2 million in 2010 and 1 million as recently as 2014. The current number is only slightly above its 2005 level, suggesting that downward pressure on the homeownership rate from continued foreclosures is finally easing.

2. The silver tsunami is coming. The number of homeowner households headed by an adult aged 65 or over will increase from 48 million in 2015 to 79 million in 2035, a 65 percent increase! The number aged 80 and over will more than double by 2035. Many of these households are already homeowners and it is not yet clear how many will seek to downsize, relocate, or otherwise purchase a new home as they age. Nonetheless, this growth will reshape demand for properties (and renovations) that offer features
that improve accessibility and/or access to supportive services. 

3. Most Millennials are still younger than age 30. The largest birth group of the Millennial generation was born in 1990, making them 27 this year. While the size of each older birth group shrinks noticeably, younger birth groups are nearly as large. The upshot is that the 1990 birth group is the crest of the Millennial wave, and is the one to track when thinking about the impact of Millennials on housing demand.

4. These demographic shifts don’t necessarily imply further reductions to the homeownership rate in coming years. While much attention has been paid to the delayed household formation and homeownership of Millennials, less attention has been given to the growing number of older adults (which puts upward pressure on the homeownership rate by increasing the number of households in older age groups where homeownership rates are highest). Our analyses suggest that these two trends largely offset one another—specifically, that shifts in the composition of U.S. households by age, race/ethnicity, and family type over the next 20 years imply only minimal changes in the overall homeownership rate.

Instead, any future changes in the homeownership rate are more likely to reflect changes in the broader economy, credit conditions, and other factors that affect the
affordability of homes and mortgages. Because such factors are more difficult to project than demographics, they are a primary source of today’s uncertainty about the homeownership rate’s future path.

Jonathan Spader is a Senior Research Associate at the Joint Center for Housing Studies. His work at the Joint Center includes a portfolio of research related to homeownership, housing finance, and economic inclusion. To read the full report click here