The boom and bust cycle of the first decade of the 21st century had an enormous effect on U.S. homeownership rates. The overall rate in the U.S. peaked during the 4th quarter of 2004 at 69.2 percent and declined to 65 percent in the 1st quarter of 2013, the lowest it had been since the 3rd quarter of 1995. Although housing is ostensibly in a recovery currently, the rate had increased to only 65.3 percent by the 3rd quarter of 2013.
The reasons for the decline in the homeownership rate are clear: the first being the large numbers of homes that went into foreclosure. The loss of those homes account for most of the drop. And while the unemployment rate has improved since the depths of the recession, it remains, in October 2013, an uncomfortably high 7.3 percent with 11.3 million persons unemployed. During the 12-month period starting in October 2012, 976,000 jobs were added, but the vast majority of these jobs, about 96 percent, were part-time.
About 7 million homes are still underwater and consequently the homeownership rate is likely to decline at least another one to two percentage points over the next two years. Combined with worldwide financial uncertainty and political gridlock in Washington, D.C., it may well be another ten years before homeownership climbs back into the 69 percent range.
Homeownership rates vary significantly with the demographic characteristics of households such as age, ethnicity, type of household, as well as location. During the 3rd quarter of 2013, the homeownership rate for people less than 35 years old was only 36.8 percent, compared to 81.2 percent for those 65 years and over. During the housing boom and bust period, the homeownership rate declined in every age group except 65 years and older. During that same period, the rate for those less than 35 years old declined from a peak of 43.0 percent in 2005 to 36.8 percent in the 3rd quarter of 2013, a decline of 6.2 percent.
This age group is largely comprised of first time homebuyers. Many in this cohort are carrying heavy student loans and are facing a tough job market. Persons in the 35-44 years age group had the largest drop, 8.2 percent, from a peak of 69.3 percent in 2005 to 61.1 percent in the 3rd quarter of 2013. This age group consists mostly of first-time move-up buyers. Many of them bought a home during the housing boom and have had difficulty selling those homes. The next two age groups, 45-54 and 55-64 years old, each had a decline of about 5 percentage points. The homeownership rate for the age group that is 65 years and over to increase, rising from 80.9 percent in 2011 to 81.2 percent in the 3rd quarter of 2013, an increase of 0.3 percentage points in just the last two years.
There are sharp disparities among the homeownership rates for different ethnicities, but all experienced a decline in homeownership since the end of the boom. Rates for non-Hispanic whites dropped from a peak of 76.2 percent in the 4th quarter of 2004 to 73.3 percent in the 3rd quarter of 2013, a decline of 2.9 percent points. Among Hispanics, the homeownership rate declined from a peak of 50.0 percent in the 4th quarter of 2005 to 47.6 percent in the 3rd quarter of 2013, dropping 2.4 percentage points. The rates for blacks, who have the lowest homeownership rate among all groups, declined from peak of 49.7 percent in the 4th quarter of 2004 to 43.1 percent in the 3rd quarter of 2013, a difference of 6.6 percent points.
Homeownership rates also vary by location and have always been the highest in the Midwest and lowest in the West. Homeownership peaked in the Midwest during 2004 at 73.8 percent and declined to 69.6 percent in the 3rd quarter of 2013, a decline of 4.2 percent points. The Northeast’s rate hit a high of 65.2 percent in 2004 before dropping to 63.6 percent in the 3rd quarter of 2013 and in the South, homeownership grew to 70.9 percent in 2004 and fell to 66.9 percent in the 3rd quarter of 2013, a decline of 4.0 percent. The West peaked a little later, to 64.4 percent in 2005, but declined the most, losing 4.9 percentage points for a total of 59.5 percent in the 3rd quarter of 2013.