May 4, 2020

Homeownership Continues to Rise as Covid-19 Effects on Tenure Yet to Appear

  • The national homeownership rate rose above 65 percent for the first time in seven years 
  • All subsets of households by race and ethnicity now owning at rates above 1994 levels
  • Low-income rentership rates continue falling, though impacts of Covid-19 may reverse this trend

The latest update to Enterprise’s quarterly Housing Tenure Trends report shows continued growth in homeownership rates, up to 65.3 percent on a seasonally adjusted basis. This represents a new high in the homeownership recovery that began four years ago and the largest share of households owning their homes since 2012. The national rentership rate, meanwhile, declined to 34.7 percent, though this is still above the long-term average for the share of households renting.

Notably, all subsets of households tracked by the U.S. Census Bureau’s quarterly Housing Vacancy Survey (HVS) also saw increased homeownership rates last quarter over their 2019 levels. The largest gains were observed among those with traditionally high rentership rates, including younger households, households of color, and those with incomes below the national median. Indeed, low-income households have seen consistent increases in their share of homeowners since 2016. For this quarter, we drill down on what might be driving this growth (spoiler alert: it is not necessarily improvements in affordability or mortgage access for working-class households).

Furthermore, these figures represent activity in housing markets that largely preceded the Covid-19 crisis in the United States. The impacts of the pandemic and its economic fallout on housing tenure trends will thus take some time to materialize. With job and income losses expected to be concentrated among renter households, it is possible that a wave of evictions – especially as state and local moratoria expire later this quarter – will lead to a reduction a in the number of renter households and an increase in the homeownership rate in the short term. If, however, the country falls into a deep recession and more homeowners find themselves struggling to pay their mortgages, a switch in their tenure status may backfill rental demand and elevate rentership rates later in the year.

Quarterly Tenure Rates Approach Long-Run Averages

The rise in the national homeownership rate last quarter, while not statistically significant relative to the end of 2019, nonetheless extended the steady increase observed since this rate hit its nadir in 2016. Indeed, the share of households that own their home is now closer to its long-run average of 65.6 percent than it has been in almost seven years. 

At the same time, the share of households renting continued to decline, down to 34.7 percent last quarter. This drop has not eased pressure on the rental market, however, as the vacancy rate on rented units also fell and remained near its 35-year low of 6.4 percent reached at the end of 2019. Nor are rental costs declining with demand, as inflation-adjusted rents rose to new record highs last quarter. The price of owned housing also continues to increase, approaching former record highs achieved during the housing boom in 2006. 

Annual Tenure Rates Move in Sync by Race and Age

For the first time in 20 years, the homeownership rates of every subset by age increased last quarter. While these gains were larger among young and middle-age households, seniors continue to be the only age group whose rentership rate has remained below their 1994 level.

Among subsets by race and ethnicity, the big story continues to be the rise in homeownership among non-Hispanic black households, who narrowed their tenure rate gap relative to white households to under 30 percentage points for the first time in five years. Hispanic households also had notable increases in their share of owning households, bringing them within a percentage point of their record high.

It is worth noting that, despite gains in homeownership, more than half of young households under 35 years old and of households of color still rent their homes. Whether deteriorating economic conditions among these groups will reverse the downward trend in declining rentership, or prompt existing renter households to double up with family and friends – or in the worst-case scenario, become homeless – and suppress renter household growth remains to be seen. 

A Closer Look at Tenure Rates of Low-Income Households 

Among the most notable trends in tenure rates over the last four years has been the steading increase in homeownership among households with incomes below the national family median income, or around $80,000. Their tenure rate has changed by 2.9 percentage points since 2016, versus only 0.9 percentage points among higher income households.

These trends may be explained as much by the composition of low-income households as by the affordability and accessibility of homeownership among working-class households. Indeed, more than 44 percent of below-median homeowners are seniors, versus 32 percent of all homeowners, suggesting many may have purchased their homes pre-retirement when their incomes were higher. Many younger low-income owners, meanwhile, likely received assistance from family to purchase their homes. 

Tenure trends among this subset may be a good barometer to watch going forward as the economic toil of Covid-related job and income losses begins to be felt in housing markets. Low-income owners may be able to leverage home equity and record-low interest rates and borrow funds to cover short-term needs. Many low-income renters, meanwhile, come into this crisis already struggling to afford their housing and will be hard pressed to cover rents. 

Recent policy actions taken to ameliorate this crisis will also exacerbate the dichotomy between owners and renters, with as many as 60 percent of mortgage loans covered by CARES Act forbearance relief – which adds missed payments onto the end of the mortgage term – versus less than half of all renter households with eviction protections that still require back rents to be paid as soon as those moratoria expire. This disparity will have long-term repercussions for the widening wealth gap in the U.S. 

Subscribe to our daily newsletter Today In Housing and visit the Enterprise Blog for more analyses of tenure and demographic trends and their implications for affordable housing and access to opportunity.

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