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The Homeownership Rate Is at Its Lowest Since 1993—Here’s Why

The Homeownership Rate Is at Its Lowest Since 1993—Here’s Why


Kid ‘n Play photo: Michael Ochs Archives/Getty Images
Background photo: iStock


The last time the homeownership rate was as low as it is today, Tupac was topping the charts with his breakout song, “I Get Around.” At the height of the hip-hop artist’s transition to pop star, nearly 64% of Americans owned a home. That rate skyrocketed to 70% in 2005, but those days are long gone.

From boom to bust, the American economy dropped housing like rap fans dropped Hammer. In 2008, home prices and the economy collapsed—the House Party was over. These days, both have bounced back in a big way: The unemployment rate is at a stable 5.5%, mortgage applications are up 20% for new homes, and foreclosures are no longer dragging down the economy. Yet for all that progress, the homeownership rate nationwide stands at just 63.8%.

What gives? Why haven’t the data in all our reports of increased home sales done anything to improve the situation? First, let’s separate the homeownership rate from current market conditions. The homeownership rate looks at what happened in the past without predicting where the market is going. Still, we were curious so we studied the numbers and found the top eight factors that drove the homeownership rate into the toilet.

  1. Wall Street: When the housing market tanked in 2008, investors purchased single-family homes by the bushel and turned them into rental commodities properties—taking millions of homes out of available ownership stock, said Jonathan Smoke, chief economist at realtor.com®. Just as banks once made billions off mortgage-backed securities during the housing bubble, now they’re making billions as your landlord. Although, now that home prices are rising, investors are more hesitant to enter this business.
  2. Foreclosures: As a result of the housing crisis, we saw about 7 million households lose their homes to banks in foreclosure. Since then, many of those homes have been sitting empty, unable to be sold until the legal foreclosure process is complete. As that backlog is dealt with, those vacant, bank-owned homes could be sold to new homeowners. Fannie Mae is now offering incentives to help people convert some of those vacant houses into owner-occupied homes.
  3. Renting: Many of those foreclosed-upon homeowners became renters—and renting isn’t exactly easy. Apartment vacancy rates nationwide were 7% in the first quarter of 2015, down from nearly 11% in 2010, according to the Census Bureau. Rents are rising, and faster than wages. Smoke predicts many Americans will be stuck in the “rent trap,” paying a greater share of their income (sometimes up to 50%!) to landlords without being able to save for a down payment. “In the ’90s, about 90% of net new households ended up being homeowners,” Smoke said. “The very ugly truth is that from 2010 to 2014, the exact opposite is true.” Still, there’s a bright side, he said: “Almost 90% of new household formations are renters, but that doesn’t mean that we won’t have more owners. Low homeownership is not our destiny.”
  4. Tight credit: The average home buyer in February 2015 had a FICO credit score of 732—but about 47% of Americans have FICO scores under 700, Smoke said. If banks want only the most creditworthy borrowers, that leaves out a lot of would-be home buyers.
  5. It takes two: There was a time—pre-2008—when the housing market was balanced, with an ample share of both married and single people buying homes. These days, it takes two incomes and a high credit score to qualify for a mortgage. In 2014, the majority of buyers were married couples, according to the National Association of Realtors®. The share of single women buying solo dropped to 16%, down from 20%, while for men the rate dropped slightly to 9%, according to the NAR’s 2014 Profile of Home Buyers and Sellers.
  6. Not enough new construction: During the recession, new home construction ground to a halt. Now, as buyers return to the market, there simply aren’t enough new homes to meet demand, and builders are targeting upper-income move-up buyers, with far fewer focused on entry-level homes. Looking for something new that’s truly affordable? Don’t hold your breath.
  7. Stagnant wages: The price of a home is rising faster than income. People are working full-time jobs and still can’t afford homes in many popular housing markets.
  8. Millennials: Young people—OK, millennials, whose median age is 23—were hit hard by the recession, so we’re not blaming them for the low homeownership rate. We could hardly expect this group of student-debt-ridden, newly employed people to have bought homes in the past few years. But they certainly will in the very near future. Last year alone, about 32% of home buyers were millennials—the largest single segment of home buyers.

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