Housing Vacancy Survey Report Q1 2020

Housing Tenure Trends Report Q1 2020

By Rachel Drew

Introduction

In the first quarter of this year, as the nation acknowledged and responded to the global Covid-19 pandemic, millions of American households nonetheless changed residences and tenure status, elevating the national homeownership rate to a seven-year high of 65.3 percent, according to data from the Census Bureau’s Housing Vacancy Survey (HVS). The share of households that rent their home, meanwhile, dipped to 34.7 percent on a seasonally adjusted basis.

The graphics below display these updated statistics in the context of long-run trends in shares of owning and renting households. They also disaggregate tenure rates for subsets of the population by age, race, and income, to demonstrate how various groups experience changes in homeownership and rentership differently.

In addition, this quarter’s report looks deeper at trends among households with incomes below the national family median, which was approximately $78,000 in 2018. Since the end of the housing boom in the mid-2000s, this subset of households saw their homeownership rate briefly dip below 50 percent, only to rebound to within a percentage point of their previous record high of 52.9 percent. The resilience of low-income homeowners likely has as much to do with changes in the composition of this group – as Baby Boomers are retiring and reducing their income while remaining in their owned homes – as with affordability and mortgage access for younger working-class households. As the impacts of the Covid-19 pandemic and its economic aftermath on housing markets materialize over the coming months, this subset will bear watching to see if they fare as well this time as they did during the prior recession.

National Tenure Trends

The seasonally adjusted national homeownership rate rose for the fourth straight quarter earlier this year and eclipsed 65 percent for the first time since 2013. The share of American households that rent their residence also continues to approach its long-run average of 34.4 percent.

It is too early to know how the Covid-19 crisis might impact tenure rates going forward; on the one hand, renter households are especially vulnerable to job losses and may face eviction, especially once short-term moratoria at the state and local level begin to expire. A large loss of renter households, whether they end up homeless or doubling up with friends and family, may actually elevate the homeownership rate in the short term. On the other, if the economic fallout from this crisis drags on into the second half of this year, some homeowners may also struggle to afford their housing and be subject to foreclosure, which could backfill the loss of renter households and reverse the course of the rentership rate.

 

Quarterly Tenure and Housing Cost Indices

Representing recent trends as indices relative to past levels offers a different perspective on the long-run trajectory of tenure rates. Comparing these indexed values to similar data on the inflation-adjusted costs of buying and renting adds another dimension to this analysis. Notably, the rental cost index rose 1.6 percent in the first quarter of this year, after a small decrease at the end of 2019. On the owner side, house prices continued to increase in Q4 2019 (the most recent data available) as interest rates on mortgages held steady. So far in 2020, however, rates have declined, hitting a record low at the beginning of March and falling further to a new low by the end of April. Whether households take advantage of these conditions and increase home purchases – thereby elevating the median house price – will depend on the outlook for the post Covid-19 economy.

 

Tenure Trends by Age

For the first time since the national homeownership rate peaked in 2004, all subsets of households by age saw simultaneous increases in the homeownership rates during the first quarter of the year. These gains continue to be concentrated among younger and middle-aged households, though the share of seniors who own their home remains the highest of all age groups and the only subset to not fall below its 1994 homeownership rate. 

That status may change soon, however, as the youngest age group – under 35 years old – saw its rentership rate decline almost all the way back to its 1994 rate. Households between 35 and 64 years old, meanwhile, continue to rent at rates well above their historic averages.

Note that these groups are based on the ages of households at the time of observation and do not follow generational cohorts as they mature. Thus, while current tenure rates of under-35-year-old householders generally reflect conditions among Millennials, the same data in the late 1990s and early 2000s represents trends among Gen-Xers at that age.

 

Tenure Trends by Race/Ethnicity

The increase in non-Hispanic black homeownership rates observed in the final two quarters of 2019 continued into the first quarter of 2020, finally elevating their share of households living in owned homes above their 1994 rate to 44 percent. Their 56 percent of households renting, however, is still much higher than during the peak of the housing boom. Contrast that with tenure rates among Hispanic households, which shifted only slightly after the housing boom and are within a percentage point of their prior record levels.

Emerging reports of disparate impacts from the Covid-19 crisis on both the health and economic conditions for households of color will bear watching, particularly for their effect on housing tenure. Higher rates of job and income loss among Hispanic and non-Hispanic black households may prompt higher rates of eviction and foreclosure among these subsets of households. The nearly three-quarters of non-Hispanic white households that own their homes, meanwhile, will be better positioned to leverage their home equity and record low mortgage rates to weather the economic storm. Any further widening of tenure gaps between white and households of color will also have longer term implications for the persistent racial wealth gap.

 

A Deeper Dive: Tenure Trends Among Low-Income Households

The gap in tenure rates between households with incomes above and below the national family median income narrowed further in the first quarter of this year, to a record-low 27.0 percentage points. The driving force behind this narrowing has not been rising rentership rates among higher-income households – indeed the share of this group that rents declined by 0.9 percentage points over the last four years – but rather increasing homeownership among lower-income households, up 2.9 percentage points since 2016. 

Rising low-income homeownership, however, does not necessarily mean low-income households are buying more homes. It may be that existing homeowners are receiving less earned income, perhaps as they retire and are able to live off accumulated wealth, which puts them below the median for U.S. families. Indeed, analysis of the 2018 American Community Survey shows that households age 65 and over account for 44 percent of homeowners with incomes under $80,000 versus 32 percent of all homeowners.

At the same time, some younger homebuyers may have lower incomes but receive assistance with their down payment from older family members. A recent survey from Freddie Mac also found that the share of young first time homebuyers who had a co-borrower age 55+ on their mortgage more than doubled between 1994 and 2018. Indeed, just having parents that own their home is associated with an 8 percentage-point higher homeownership rate among otherwise similar millennial householders. 

This heavy reliance on intergenerational transfers for home purchases underscores the growing divide among who is and is not able to purchase a home. Increasingly, only those with access to existing wealth will have the opportunity to grow their own assets for the future. Resolving this disparity will require a renewed commitment to both increasing access to affordable homeownership options among those without family financial support, as well as the development of alternative methods for growing wealth that are not dependent on one’s debt and down payment circumstances.

Housing Vacancy Survey Report Q4 2019

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