Where 1% Equals One Million Home Owners

In 2015 the home ownership rate is roughly 63.9% in the U.S.  This is a decline from the 2007 high of 69%.  Each percentage point decline represents one million homeowners.  Thus, in 2015 there are five million fewer home owners than in 2007.  That means there are five million more renters in the marketplace, right? Wrong!

The staggering number here is the actual increase in the number of people being housed as renters versus homeowners since 2007.  Consider the following as a static number (excluding changes to aggregate population).

The average American household has 2.55 persons. So displacement of five million households from being homeowners to becoming renters impacts over twelve million people.

That’s right, five million fewer homeowners equates to more than twelve million new persons in rental housing.  I make this distinction because people tend to follow certain patterns.  The one for your consideration here is that this particular cohort will remain renters for an extended period- meaning for years.  Why? Here are a few reasons:

  • In recent months obtaining a mortgage is slightly easier than during the depths of the recession yet underwriting standards remain firm.  This firmness has contributed to a reduction in the home ownership rate and will continue to do so.

  • While many renters strive to become home owners this idea is not universal.  Thus, for a number of people transported from homeowners to renters they may never again enter the home ownership market.  This also applies to their children.

  • Home affordability changes.  As people age their ability to acquire a home does not necessarily increase. There is an age “tipping point” where committing to a large down payment and a long-term mortgage is no longer a viable alternative to remaining as a renter.

Changes to the home ownership rate are a constant. They will change yet again as a percentage of the population, but slowly.  It may well be a full generation until we see home ownership  rates approach 69% again.  Regardless, let’s hope that when it does occur the increase remains a sustainable one.

This article is intended to be informational only and does not provide legal, financial or accounting advice. See http://multifamilyinsight.com. Multifamily Insight.

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