Statistics from the U.S. Census Bureau revealed this week that the U.S. homeownership rate was at its lowest level in more than 20 years in the December quarter of 2014, largely due to prospective consumers “sitting on the fence” and opting to rent.
According to the Census Bureau, only 64 percent of Americans in quarter four 2014 owned a home, down from 64.4 percent in the September 2014 quarter. This is the lowest figure on record since the second, or June ending quarter of 2014, according to Bloomberg. The publication cited rising home prices and a lack of lower-end home supply as the reasons why many consumers, especially entry-level buyers, were priced out of the market.
Mortgage standards, which remain historically draconian, were also mentioned as a factor. In a separate set of data from the National Association of Realtors, the share of first-time home buyers in 2014 was at its lowest in close to three decades.
“The improving economy helps, though affordability is a growing challenge,” said Trulia chief economist Jed Kolko in an interview. “I suspect we’re closer to the bottom (with regards to decreased homeownership stats).” Home price hikes, however, had noticeably decelerated in 2014, though it must be said that these price hikes were still too much for several consumers to handle.
With lower-end and younger home buyers unable to afford homeownership, this sent many consumers to the rental market. The rental vacancy rate in quarter four 2014 was down to only 7 percent, a significant year-over-year drop-off from the 8.2 percent vacancy rate in quarter four 2013. This was also the lowest rate on the Census Bureau’s files since 1993. Rentals were especially hard to find in the West, where vacancies were down from 6.3 percent in quarter four 2013 to 4.8 percent in quarter four 2014.
The number of new U.S. households added in the December 2014 frame was a healthy enough 1.66 million added since the December 2013 frame. The number of owner occupied homes was down by 0.5 percent, but renter-occupied units ticked up by 5 percent.
According to Trulia’s Kolko, this means younger buyers are opting to lease or rent a home, as opposed to owning one. Homeownership in the U.S. had reached a peak level of 69.2 percent in June 2004, while the average from 1965 to 1999 was 64.5 percent, which is actually quite close to the present levels on record.
While this does not seemingly bode well for the housing market at the start of a new year, there are some things that consumers can look forward to in 2015, especially younger ones who are just entering the market.
For one, government-sponsored mortgage buyers Freddie Mac and Fannie Mae have reduced the minimum down payment requirement from 5 percent to 3 percent. There have also been some moves made by federal agency to reduce the cost of mortgage insurance premiums. And with home price increases still decelerating and mortgage rates at 20-month lows, these factors may be able to influence first-time buyers to take a chance and enter the market.