The erosion of homeownership has been one legacy of the housing boom-and-bust of the last decade. The homeownership rate peaked at 69 percent in 2004, inflated by relatively easy mortgage credit primarily provided by subprime and low/no-doc loan products. The drop in homeownership continued through 2016, with the homeowner rate just a tad above 63 percent, the lowest annual average in 50 years (Figure 1). But we may be at or near the bottom of the homeowner decline.
Analysis of our foreclosure and short sale data has found that more than 10 million homeowners lost their homes through completed foreclosures or short sales since 2006 (Figure 2). Given that the number of households in 2006 was about 115 million, that would represent about 9 percent of households.
Completed foreclosures have dropped significantly since the trough in the housing market, with annual totals falling 21 percent just in the past year. Household income growth, home price gains, and loan modification programs have reduced foreclosures; another 20 percent fall in completed foreclosures during 2017 would bring foreclosures below the 2006 level, lessening the downward tug on homeownership.
Demographics have been another cause of the dip in homeownership as the large millennial cohort has formed households and entered the rental market. But this age-related drag on aggregate homeownership may be largely behind us, as an increasing number of millennial households enter their 30s, the typical age of first-time ownership.
Nonetheless, there are at least two trends that may continue to exert a downward pull on homeownership. First, minority-headed households are projected to account for nearly three-fourths of net new households formed over the next decade, and these households have historically had lower homeownership rates (Figure 3). Second, there is a smaller mortgage ‘credit box’ today compared with 15 or more years ago, which reflects the nexus of cautious underwriting and discouraged would-be buyers who have variable income or marginal credit scores.
Overall, the decline in foreclosures and distressed sales, aging of the millennial cohort, and projections of economic growth suggest that the homeownership rate may be at or near the bottom of its 12-year decline. However, unless minority-headed households are able to increase their ownership rate, it’s unlikely that there will be any substantive increase in the homeownership rate during the next decade.
1 Daniel McCue and Christopher Herbert, Updated Household Projections, 2015-2035: Methodology and Results, Harvard University Joint Center for Housing Studies Working Paper, December 2016.
2 See the Housing Credit Index report from CoreLogic, available at http://www.corelogic.com/about-us/researchtrends/housing-credit-index.aspx
3 Daniel McCue, Baseline Household Projections for the Next Decade and Beyond, Harvard University Joint Center for Housing Studies Working Paper W14-1, March 2014, pp. 10-11.
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