Housing Vacancy Survey Report Q4 2019

Housing Tenure Trends Report Q4 2019

By Rachel Drew

Introduction

The U.S. homeownership rate increased slightly last quarter, by 0.1 percentage points to 64.8 percent, according to data from the Census Bureau’s Housing Vacancy Survey (HVS). While not a statistically significant change relative to rates from the prior quarter, the share of U.S. households owning their home is now at its highest since 2014. The share of households that rent their home, meanwhile, dipped to 35.2 percent.

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.

For this quarter, the report looks deeper at trends among households with heads under age 35, which includes the bulk of the Millennial generation. This segment of the population has seen the most dramatic change in tenure rates over the last few years, though their rentership rates remain above their long-run average. Their future course is uncertain, as changes in their demographic composition will combine with economic conditions to shape their tenure decisions going forward.

National Tenure Trends

For the second quarter in a row the national homeownership rate ticked up, after a period of relative stability over the prior six quarters. This shift came from a net addition of over 2.1 million more homeowners in the second half of 2019, coupled with a decrease of more than 650,000 renting households. It is still too early to call this a trend towards increased owning and decreased renting shares, though both rates did inch closer to their long-run averages last quarter.

 

Quarterly Tenure and Housing Cost Indices

Representing recent trends as indices relative to past levels offers some further perspective on the long-run trajectory of tenure rates. The homeownership rate index appears closer to its 1980 level, relative to the rentership index, due to the higher starting point of this series. Nonetheless, if homeowner and renter rates continue to diverge, their indexed values will likewise converge until both return to their long-run average levels.

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 showed its first decline in over two years, and its largest dip since 2012, as general inflation surpassed rents in Q4. Comparable data for the homeowner cost index is not yet available for last quarter, though through Q3 of last year house prices remained on a steady upward trajectory.

 

Tenure Trends by Age

Recent trends in national tenure rates have not been distributed equally across all subsets of U.S. households by age, with only the youngest and oldest groups experiencing an increase in their homeownership rates between 2018 and 2019. Households headed by people ages 35 to 64 instead had steady or slightly increasing shares of renter households last year, though all have declined relative to their peak rentership rates in 2015 and 2016. Each middle-age subset also remains well below their 1994 homeownership rates.

Households headed by seniors – ages 65 and over – continue to buck the long-run tenure trend, with almost no change in their owning and renting shares since 2015. This subset is also the only age group to not experience a dramatic increase in rentership after 2004, as their share of homeowning households has remained above its 1994 level over the last quarter-century. This consistency means that most seniors are opting not to cash out of their owned homes and switch to renting, which has important implications for both asset development and homebuying trends overall.

Note that these groups are based on the ages of households at the time of observation and does 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 balanced out decreases in the first half of the year, so that the annual tenure rates for these households remained flat relative to 2018. This group thus remained the only racial/ethnic subset with rentership rates still above their 1994 level, and their tenure gap relative to non-Hispanic White households expanded further to a record 31.3 percentage points.

Hispanic households, meanwhile, increased their share of homeowners to a ten-year high of 47.5 percent, narrowing their tenure gap with White households to 25.9 percentage points. Asian and other race households, despite a slight increase in rentership last year, have still had the largest gains in their homeownership rate since 2016, up 2.4 percentage points to 55.2 percent in 2019.

 

Tenure Trends by Income

The gap in tenure rates between households with incomes above and below the national family median (around $59,000) continued to narrow last year to a record-low 27.7 percentage points. Continued growth in lower-income homeownership rates are driving this convergence, up 1.8 percentage points since 2016 alone, versus 0.5 percentage points for higher-income household. Higher-income households, meanwhile, are still renting in higher shares than before the late-90s homeownership boom began, though more than three-quarters of this group remain owners.

Note that these changes may be as much a product of households moving above/below the median family income line as of a change in tenure choices among households within each group. For instance, retiring homeowning Baby Boomers are making up ever larger proportions of below-median income households, which elevates this group’s homeownership shares. At the same time, more young households that rent are earning above the median, which skews high-income rentership rates upward. 

 

A Deeper Dive: Young Adult Tenure Trends

Since 2016, households with heads under 35 years old have had the largest shift in their tenure rates of any age group, with their homeowner share increasing by 2.2 percentage points in just three years. This shift is notable for a subset of households that is often viewed as more transient, urban-dwelling, and unable to afford homeownership due to low earnings and heavy student loan burdens. Though almost two-thirds of this age group do still rent their residence, the growing cohort of Millennial homeowners nonetheless suggests homebuying remains desirable and attainable to at least some young adult households.

A recent survey asked American ages 23-38 who intend to buy this year about their motivations for homeownership. While 91 percent said homebuying is a good long-term financial investment, 69 percent also felt it was an obligatory rite of passage into adulthood. Nearly half also reported receiving financial assistance from their family, highlighting an important factor in young adults’ ability to buy a home.

Millennials are more likely to be people of color relative to prior generations of young adults, and thus are less likely to have parents that are homeowners or have other assets to contribute to their children’s home purchase plans. Reliance on parental assistance thus may further exacerbate racial tenure and wealth gaps among this generation.

Young adults that are not making the move to homeownership, meanwhile, often struggle to pay rent. The share of renters under 35 spending more than 30 percent of their income on housing is 47 percent, and the share spending more than half is 24 percent. Such renters struggle to keep a roof over their heads, much less to save for a down payment. With 43 percent of potential buyers in the survey above also reporting preferences for owning in a major metro area, high house prices and tight inventory in such markets may also dampen their prospects for purchasing in the near term.

Housing Vacancy Survey Report Q3 2019

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