Homeownership plunges to record lows
Is this a side effect of the national economy?
It has been said that a picture is worth a thousand words — especially true with the housing market. The second quarter saw a record broken, which few will be celebrating.
Homeownership sank to a 50-year low of 62.9 percent of our population. This dismal record marked a continuation of a downward trend that began in 2004, when the figure topped out at 69.2 percent.
The decline has continued almost unmitigated through the most frenzied days of the housing bubble, through the Great Recession, through the housing market recovery and during the seven-year-long economic expansion.
It is safe to say quite a few parents are experiencing the practical reality of this drop in homeownership. After all, many of those within the age demographic typically looking to buy a first home are instead returning from college to live in mom and dad’s basement!
According to new research from the Pew organization, more young adults ages 18 to 34 are living with parents (32.1 percent) than either married or cohabitating (31.6 percent) — or living alone or as the head of a household (14 percent).
This is a historic first for the United States. And it’s a stunning shift from 1960 when more than 60 percent of this demographic cohort lived with a significant other and only 20 percent lived with parents.
Is soft economic growth the primary culprit behind dramatically higher proportion of post-college adults living at home and hence delaying real estate purchases? What is incontrovertible are the plunging levels of labor force participation for young adults. For instance, more than one in four adults age 22 to 24 are not even looking for a job. As we all know, obtaining a mortgage is next to impossible in such a circumstance.
Of course, having a job is only part of the question in buying a home — affordability also comes into play. Although interest rates remain at historic lows, housing costs have rebounded since the financial crisis. The S & P/Case-Shiller U.S. National Home Price Index declined more than 25 percent from the peak of the housing market boom in early 2007 until the post-crisis bottom in early 2012.
However, in just four short years, nearly the entire decline has been erased, with the index soaring 30 percent. Since 2000, this measure of home prices has increased 80 percent — roughly twice the overall inflation rate during this same timeframe.
As the shift to renting (in addition to living with parents) continues, ultra-low rental vacancy rates are being seen. Last quarter, the rental vacancy rate dipped to just 6.7 percent — down from more than 11 percent following the Great Recession, and lower than at any point in more than 30 years.
This tight rental market, has helped produce sharply rising rental costs — a jump of 20 percent since the recession ended in the middle of 2009. Current economic indicators do not seem to suggest a return to normality on this homeownership front. Residential construction spending remains more than one-third below the levels seen a decade ago. More disconcerting is the level of new privately owned housing starts.
This past decade realized the lowest number of housing starts of any other 10-year period in the past half-century. After peaking at an annual rate of 2.3 million in January 2006, housing starts plunged to 400,000 by the end of the Great Recession. Now, seven years into the recovery, annual housing starts are barely half that level at 1.1 million.
In fact, from 1960s through 2007, housing starts were only lower than present levels in three of those years.
For many families, a personal residence is their single most valuable asset. Purchasing a home early in one’s career can provide at least a foundation for retirement security with the forced equity building related to a long-term mortgage. As such, many economists are troubled by this decline in homeownership. Time will tell if acceleration of economic growth reverses this trend.