Why Declining Homeownership Rates Might Not Be a Bad Thing

Homeownership declined in five of the past eight quarters, remaining in line with historical averages.


In the first quarter of this year, homeownership rates fell to levels not seen since 1998. Despite that gloomy statistic, some experts say the decline might not be such a bad thing.

The share of Americans who owned their homes dipped to 66.4 percent, according to the U.S. Census Bureau, continuing the downward trend that began in mid-2009. Homeownership peaked at 69.2 percent in late 2004.

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"Falling back to the 66-percent level is probably a good thing," says Ken Shuman, head of communications at real estate information website Trulia. "Homeownership isn't the American dream for everyone. A lot of people bought homes who shouldn't have been able to buy homes."

Historically, homeownership levels have hovered between 63 and 66 percent since the 1950s, only recently spiking to nearly 70 percent as a result of the credit bubble. "We had a credit bubble with housing as a symptom, and essentially homeownership edged outside that 'normal' range where it had been comfortable," says Jonathan Miller, president of New York City-based Miller Samuel Real Estate Appraisers.

After the implosion of the housing and banking sectors, homeownership rates have been on the decline, but remain perched near the top of the "comfortable" range, Miller says. "What's happening is that [we're] reverting to the mean," he says. "Remember why [the rate] went from 66 to 69 [percent]. It wasn't because homeownership became more in favor as much as it was the credit vehicle to make it essentially a no-brainer was the driver."

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Lenders have reigned in credit standards, making it tougher to get financing for home purchases, but declining home prices and a chronically unstable job market may have a greater hand in keeping homeownership levels lower going forward.

"The single most significant driver in the housing market is consumer confidence," says Mitchell Hochberg, principal at New York City-based Madden Real Estate Ventures. "A lot of people are still afraid to make what is the biggest investment in their portfolio—a house—right now until they feel that both the economy and the housing market have stabilized. You have a lot of people who are sitting on the sidelines."

Nevertheless, experts say declining apartment vacancy rates and rising rental costs could give the housing market a much-needed boost. According to the Census Bureau, the rental vacancy rate was 9.7 percent in the first quarter, down from 10.6 percent in 2010. The uptick in renters has put pressure on rental rates in many areas, and buying is now more affordable than renting in nearly four out of five major U.S. cities, according to Trulia.

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That might not sound like good news for tenants, but higher rents often boost home purchases and accelerate a housing market recovery. Historically low mortgage rates—the rate for a 30-year, fixed-rate mortgage was 4.63 percent as of May 12—are also a boon for would-be home buyers. "I've never in my life seen [interest] rates this low, where a family can go and borrow in the high fours and own a home," says Dorcas Helfant-Browning, managing partner at Coldwell Banker Professional Realtors. "I can't think of a landlord that's not upping rates with the market right now."

Along with an increase in the renting population, the glut of vacant homes serves as another reminder of the foreclosure crisis and housing market meltdown. "We're at a good level and we're starting to stabilize at two-third owners, one-third renters, and that's a comfortable level," Shuman says. "My bigger concern is the vacancies. We so overbuilt during the boom. What does that mean for home builders? What does it mean for the construction industry moving forward?"

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According to Shuman, of the 130 million homes in America, about 10 percent remain vacant. "These aren't even the bank-owned homes," he says. "These are homes that have been vacant and are going to stay vacant." That figure, coupled with foreclosures still trickling through the system, threatens to further inflate the supply of homes and push prices down further.