Housing Vacancy Survey Report Q4 2018

Housing Tenure Trends Report Q4 2018

By Rachel Drew

Introduction

The U.S. homeownership increased for the 10th straight quarter to a seasonally-adjusted rate of 64.6% in Q4 2018, according to data from the Census Bureau’s Housing Vacancy Survey (HVS). The gain in the share of households owning since Q2 2016 now stands at 1.6% up from the recent nadir of 63.0%. The share of households that rent, meanwhile, decreased to 36.4%

The 0.2% change in tenure rates from the previous quarter is not statistically significant by itself but does represent an estimated net increase of 1.27 million owners – the largest such quarterly increase since Q1 of 1981. The estimated number of renters, meanwhile, decreased by 152,000 households since Q3 2018.

As noted in prior quarters, changes in national homeowner and rentership rates often mask divergent trends among subsets of households. Differences in tenure trends by age, race/ethnicity, and income reveal disparities in housing market affordability and access. They also determine whether long-standing gaps in homeownership rates narrow or widen over time.

Updated graphics below demonstrate for whom tenure rates are changing the most, whether through increases in homeownership or rentership rates. These data also remind us that despite national gains in homeownership, millions of American households rely on rental units provided by private landlords to meet their shelter needs. It is crucial that the housing stock maintain and develop a diverse set of housing options so that all households, regardless of tenure choice, have access to suitable and affordable living quarters.

National Tenure Trends

The recent increase in the national homeownership rate continued the trend of recovery from the dramatic downturn after the end of the 1994-2004 homeownership boom. The current homeownership rate of 64.6%, however, remains well below the series peak of 69.4% in 2004, as well as the long-term (1980-2018) average of 65.6%. The opposite is true of renters, whose share of households declined from their recent peak of 37.1%. but remain above their long-term average of 34.4%

The shifts in tenure rates by quarter, though small, can have big impacts on the estimated number of owner and renter households. Over 79 million U.S. households now own their home – a new record for this data series - while just over 43 million rent. Caution is advised in interpreting these estimated numbers, however, which differ from official counts reported by other Census Bureau surveys.

Quarterly Tenure and Housing Cost Indices

Another way to asses changes in tenure rates over time is to look at their indexed values relative to their 1980 levels, as shown below. Due to lower shares of renter households overall, shifts in rentership rates appear more dramatic than the same percentage-point changes in homeownership rates.

Comparing indexed tenure rates to housing cost trends shows some disconnect, however, between demand and prices. Rental costs continue to rise, even as the share of renting households declines. Increases in house prices, meanwhile, are outpacing rental costs. 

Tenure Trends by Age

Tenure rates have long shown a distinct pattern by age, with each group generally experiencing higher homeownership rates and lower rentership rates relative to younger age cohorts. The one exception to this trend was seniors over age 65 prior to 2008, when Baby-Boomers began filtering into this age group and elevated their homeownership rate relative to 55-64-year-olds. 

While seniors were increasing their homeownership rate, other age groups were seeing rising rentership rates coinciding with the housing market downturn. The youngest age groups were most impacted, with the largest absolute change in their tenure rates, though on an indexed basis 45-64 year-olds had more dramatic increases in rentership rates relative to their low shares of renter households during the housing boom. 

When homeownership rates begin rising after 2015, tenure rates for the youngest households were once again changing faster than for older households. The owning share of households ages 55-64, however, has been generally flat, and among seniors has continued to decline slightly. Seniors are also the only age group with a rentership rate below their 1994 level.

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

Despite increases in homeownership rates nationally, not all racial/ethnic groups are seeing big changes in their tenure rates. Non-Hispanic Black households, for example, have experienced almost no change in tenure rates since the end of the housing down turn. As a result, the gap in tenure rates between these households and non-Hispanic Whites is at its largest for this series, at 31 percentage points. This disparity in tenure rate has significant implications for racial wealth inequality going forward, as more white than black households will have opportunities to build equity through homeownership over time.

The trend for other minority households is different, with both Hispanic and Asian homeownership rates increasing more than the national rate over the last few years. Both groups continue to lag non-Hispanic White homeownership rates and their tenure gaps relative to White households – 17.3 percentage points for Asians and 26.0 percentage points for Hispanics – remain above prior lows (16.0 and 25.6pp, respectively) reached in 2006-2007.

Tenure Trends by Income

Despite similar trends in tenure rates among below- and above- national median income households, the difference between their shares of owning households has narrowed since the end of the housing boom in 2004. A smaller percentage-point decline in homeownership rates among below-median income households during the downturn (-3.6 vs -6.1pp for higher income households) and greater gains since 2016 (+1.4 vs. +0.5pp) have reduced their tenure gap with above-median income households by 3.5 percentage points, from 31.6 to 28.1.

Relative to their 1994 tenure rates, below-median income households have higher homeownership rates and lower rentership rate than before the housing boom began, while the opposite is true of above-median income households.

While quarterly changes in tenure rates may appear small, these data represent millions of U.S. households living in owned and rented housing. A shift of even one-tenth of one percentage point in the homeownership rate can mean hundreds of thousands of additional households buying homes, often with the aid of a mortgage. A similar shift in rentership rates, meanwhile, means hundreds of thousands more households paying rent to their landlords while enjoying the flexibility to move for better jobs or neighborhoods when needed.

Disparities in tenure rates are also significant, as they suggest different long-run opportunities for households by age, race, and income. High homeownership rates for non-Hispanic Whites relative to minority households means millions more of the former able to build equity over time, adding to already large racial wealth inequalities. The high shares of young and low-income households that rent, meanwhile, will continue to compete for the limited supply of affordable rental housing. Policy solutions are thus needed to address both these needs, but without giving preference to one form of tenure over the other.

Housing Vacancy Survey Report Q3 2018

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