Housing Vacancy Survey Report Q3 2019

Housing Tenure Trends Report Q3 2019

By Rachel Drew

Introduction

In a marked reversal from earlier in the year, the U.S. homeownership rate rose to 64.7 percent on a seasonally-adjusted basis in the third quarter of 2019, 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 tenure rates changed course in 2016, after twelve years of declining homeownership. The share of households that rent their home, meanwhile, dipped to 35.3 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.

Following these updates, this report also takes a closer look at the tenure trend among Hispanic households, who have seen steady increases in homeownership over the last five years. Given the forecast for 28 percent growth in households headed by persons of Hispanic-origin by 2028, the future course of their tenure rates relative to other households will have significant ramifications for national housing tenure and wealth trends.

National Tenure Trends

The notable change in tenure shares last quarter ended a stable period in homeownership and rentership rates over the prior eighteen months. The 0.4 percentage point jump in the national homeownership rate, which had oscillated between 64.3 and 64.5 percent in each quarter from Q1 2018 through Q2 2019, represents the highest share of homeowning households since 2014. Whether this portends a new trend of increased homebuying to come or represents only a temporary blip in otherwise stable tenure rates, remains to be seen.

It is worth noting that, despite the changes reported in the most recent quarter, both homeownership and rentership rates remain nearly a full percentage point off their long-run average levels. A full return to those levels would require a much more dramatic shift in both the tenure choices of households and in access to affordable mortgage lending and homebuying opportunities.

 

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. Specifically, it reveals a disconnect between the demand for owning and renting housing and the costs to procure it. Both home buying and renting expenses have increased steadily over the last seven years, even as shares of owning and renting households have fluctuated. Indeed, relative to the past forty years, real rental costs are now higher than they have ever been, and the price of owned homes is rapidly approaching its former peak.

 

Tenure Trends by Age

The Q3 increase in nation-wide homeownership rates is reflected in the rates of nearly all subsets of U.S. households by age, with only those ages 45-54 holding steady from the prior quarter. However, when these disaggregated tenure rates are averaged over the first nine months of 2019, only the youngest subset – those under age 35 – register any increase in homeownership rates relative to 2018. This group also has the largest change in rates going back to 2016, with rentership rates that declined by 1.9 percentage points over three years.

At the other end of the age spectrum, households headed by seniors – ages 65 and over – are the only subgroup to experience an increase in rentership rates since 2016, albeit from a very low base of senior renters prior. Still, it is worth noting this shift especially as the second half of the Baby Boom generation, which had some of the highest homeownership rates relative to any prior generation, enters this age range. Whether more seniors make the move to renting, or remain homeowners, will also have implications for younger households trying to buy for the first time.

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 most notable data point in the current HVS report is the significant jump in Black homeownership, after steady declines in the prior two quarters. However, when averaged over the year to date, Black homeownership still shows a drop relative to 2018, as well as a record-high gap relative to White households. Indeed, with quarterly increases in homeownership reported across all subgroups by race and ethnicity, only Black households continue to have rentership rates above prior peaks.

Hispanic and Asian homeownership rates, meanwhile, have the highest relative increases in homeownership since 2016. Both also have lower shares of renting households when compared to Black households, though their shares are still double that of White households. As discussed further below, projected growth in these households will mean greater contribution to national level tenure rates going forward.

 

Tenure Trends by Income

Tenure gaps between households with incomes above and below the national family median income (around $59,000) continue to narrow, with lower-income homeownership rates increasing 1.6 percentage points since 2016, versus 0.4 percentage points for higher-income households. Nearly half (49.5 percent) of all lower-income households continue to rent, however, with many struggling to find affordably-priced units in their communities. The share of higher-income households renting, though only around 22 percent, also remains above mid-1990s levels.

Keep in mind 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: Hispanic Homeownership Trends

A noted above, the gap in tenure rates between Hispanic and non-Hispanic White households has been steady at 26 percentage points since 2016, just shy of the record low 25.6 points reached in 2007. This comes as Hispanic homeownership rates have increased each year since 2014, from 45.4 percent to 47.3 percent through the first three quarters of 2019. Though White homeownership rates have largely kept pace, the relative growth for Hispanic households is larger coming from a lower starting point.

Indeed, Hispanic households were the first subgroup by race and ethnicity to recover from the homeownership downturn, as their homeownership rates turned around a full two years before any other group. They also experienced a later peak (49.7 percent in 2007) and a smaller total decline (4.5 percentage points) during the downturn.

So, what explains this divergent trend among Hispanic households relative to other groups? The National Association of Hispanic Real Estate Professionals® (NAHREP) releases an annual State of Hispanic Homeownership Report that addresses this question. They report above-average labor force participation, increases in median income, and multi-earner households among Hispanics relative to the rest of the U.S. population. They also note that the share of Hispanic homeowners with FHA mortgages is twice that of non-Hispanic households (43 percent vs. 21 percent).

Going forward, the tenure rates of Hispanic households will play an even greater role in shaping national trends, as this group is projected to account for 37 percent of all household growth from 2018 to 2028, according to Harvard University’s Joint Center for Housing Studies. For comparison, non-Hispanic White and Asian households will each account for 23 percent of growth, and Black households for the remaining 16 percent. If Hispanic homeownership rates continue their upward trajectory during this period, the national homeownership rate will likely follow suit.

 

Housing Vacancy Survey Report Q2 2019

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